From Citi today:
Consolidating gains — This year the ASX200’s limited progress, rising only a few percent so far, has felt a bit disappointing, but it is only just short of the pace we expected, with our end year forecast of 5850 envisaging a rise of less than 10%. After the average gains of ~15% in 2012 and 2013, which returned market valuation to a more normal level, the rise always looked likely to slow, and the possibility now of little earnings growth again in FY15 has contained the market a bit more. This has caused us to trim our end year forecast to 5750, but we’re still optimistic about the next couple of years, and are forecasting the ASX200 to move toward 6000 by mid-2015. While there are risks, the outlook for earnings still looks promising, with the anticipated broadening in the economy’s growth again, after widespread cost discipline, likely to lift industrials margins; and with the capacity added continuing to lift resource output, and supporting earnings as commodity prices moderate further.
Shifting performance — The key risks in our mind continue to be the danger of market retracement if the Fed is required to tighten policy sooner, and more disappointing GDP growth domestically if the transitioning of the economy doesn’t proceed that smoothly; but, as discussed in the report, neither risk seems a major threat just at the moment. Nonetheless, even on current expectations, US rates look like they will be beginning to move up in the coming year, so the performance within the market itself seems likely to change, with the prospect of the outperformance of the banks coming to an end, and improving world growth finally encouraging a rotation into resources; while for industrials, the more cyclical stocks should still tend to outperform, but more selectively in resilient areas, as discussed in the report.