Global financial services firm Morgan Stanley forecasts the Australian sharemarket will reach record levels by mid-next year. The firm, which provides investment banking, securities, wealth management, and investment management services, anticipates the S&P/ASX 200 index will hit 9250 points over the next 12 months. This represents an 8 per cent gain from current levels and would surpass the benchmark’s March record of 9200.9 points. This optimistic outlook hinges on surging commodity prices, expected to significantly boost earnings across the materials and energy sectors, thereby offsetting a projected slowdown in consumer-facing stocks.
Morgan Stanley’s Australian equity strategist, Chris Nicol, advanced the firm’s target timeline by six months, citing recent RBA interest rate rises and the global energy shock. Nicol noted that while domestic stocks face policy-linked earnings pressure, materials and energy sectors are expected to drive growth, with resources significantly contributing to market earnings. However, Morgan Stanley cautions the market has likely passed its peak in earnings expectations, with downgrades emerging for FY26-FY28 due to resource volatility and higher interest rates affecting domestic earnings. Short-term index weakness is also anticipated.
A nearly 7 per cent pullback in the Australian sharemarket since late February, partly due to geopolitical events, has moderated earnings expectations. This downturn has made ASX shares more attractively valued, with the ASX 200 trading at a 12-month forward price-to-earnings ratio of 16.9 times. This is slightly above the 10-year average but well below late last year’s valuation. In response, Morgan Stanley reinforced its “overweight” position in resources, adding Ampol and Paladin Energy to its model portfolio while increasing holdings in BHP and Santos. Conversely, it reduced exposure to bank stocks including ANZ, National Australia Bank, and Westpac, and exited positions in housing and domestic economic cycle-linked stocks like REA Group, Qube Holdings, and Seek.
