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Will the ASX 200’s strength continue?

David James |  28 April 2021  |  Big Picture

The ASX 200 is on the verge of posting its seventh successive month of rises. How does the Australian market compare with the rest of the world and will there be a sell off?

According to Bell Potter’s Coppo Report, the ASX has had its biggest monthly rise in five months – since the November +9.96% surge - which was the biggest rise in over 115 years. “With 4 trading days left in April, the ASX 200 is currently up +3.88%,which is its 7th consecutive up month. It means that the ASX 200 has now risen for 12 out of the last 13 months.

The report says there will eventually be a sell off. “I’m still in the May selloff camp – with the banks the ‘trigger’. There are still many who are underweight equities and will be buyers at lower levels, which means that any decent selloffs will stop out at around -5% to -7.5%.

“No one knows when the selloff will come – but we know one thing – it will come- that’s just a normal function of markets. When it does we will hear the bears (many who have been bearish for many years), will come out & tell us (for the 15th time in the last 8 years) that ‘this will be a big one’. Look they got one out of 15 correct – but then stayed bearish despite market being down -38% at its low – so they are overdue for some sort of win.”

Mercedes

The report notes that April has been the best month for ASX 200 since 2000, but May is the second worst. “The key to doing well in 2020 was own pretty much "anything" (just had to be long) – while 2021 will be much harder and you need to be in the right stocks and the returns I suspect in 2021 will be far more subdued. I personally I think the growth stocks will steal the show from Value in 2021, but we won't know the answer to that for another eight months.”

A report from Wilson notes that the US equity market has surprised many market pundits with its almost uninterrupted ascent. “Global equities have enjoyed a very strong rebound over the last 12 months, and the US market has, for the most part, led the way.”

The report says the Australian stock market has underperformed the US significantly over the last year in local currency terms (49% to 35% total returns before currency adjustments). But when the 20% appreciation of the A$ over the last year is taken into account, Australia is ahead of the US market in common currency performance terms.

The Wilson report is bullish on the ASX. “We still see at least some moderate upside to the A$ as global growth improves and expect Australia can outperform the US in common currency terms over the next 6 to 12 months. However, we see Australia as likely to be a market performer versus the rest of the world.

“Australia has seen the strongest upgrade momentum of any major market over the past 3 and 6 months, led by big upgrades to the resources and banking sectors, and we believe there is more upside. The risk to bank sector estimates is still likely to the upside as the economy continues to surprise (lowering bad debt provisions), while the rebound in the iron ore price suggests resource estimates will once again prove too low.”

 

Mercedes


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