CommSec says shares will rise by 9% in 2022/23. Is it time to buy?
The Big Four bank predicts the Australian share market will recover over the next 12 months and even out perform its global peers.
Despite a tumultuous 12 months for shareholders, CommSec believes the Aussie market will grow by 7-9% over the next financial year, according to its latest statement.
The market is currently falling as aggressive central policy moves, the war in Ukraine and fears of recession continue to reflect on investor sentiment.
But during the release of CommSec's Year in Review, Year in Preview report the bank's chief equities economist Craig James urges investors to look beyond short-term shocks to the market.
"In volatile times, it's always important for investors to assess over longer time frames," he said.
"While down over the past year, total returns on shares have risen by around 8.5% per annum over the past 5 years.
Why is the market falling?
It's actually pretty simple.
Inflation, which has been docile for more than a decade, is now on the rise. Some experts predict this will be around for years to come.
In response to this growing inflation, central banks around the world are lifting rates. Domestically the Reserve Bank of Australia (RBA) lifted rates by 0.5% last month, and the vast majority of experts are predicting a similar rise next month.
While lifting rates can help slow down consumer spending and hopefully lower demand by enough to see inflation rise, it is a double edged sword.
Lift them too quickly, consumer spending will drop and it can lead to a recession.
As such the market over the last 12 months has been predicting a weaker economic outlook moving forward.
Australia's share market lost 10.2% over the last 12 months, which is largely in line with most of the world. Over the same time, Japan was down 8.3% and the European markets lost 10.1%.
The United States saw bigger losses with the Dow Jones falling 10.8% over 2021/2022, the S&P 500 index down 11.9%, and the Nasdaq down by 24%.
At one point it was the worst start since World War 2.
However, James reminds investors that last financial year's falls were off to a strong post COVID-19 rally.
"Although the Australian share market fell over the past year, this followed bumper gains in the year prior with the benchmark ASX 200 index up 24%,'' he said.
Australia's market tipped to outperform
Despite the current economic headwinds, CommSec suggests the market could recover over the next 12 months, creating buying opportunities for investors.
CBA Group economists expect the economy to grow by 2.9% this year in comparison with an estimated 3.7% last year. This is off the back of higher interest rates and slowing consumer spending.
But it remains above the last decade's average.
Based on a strong economic backdrop, James believes the market will perform strongly.
"Australian companies are well cashed up with profits at record highs.
"Companies are choosing to pass on higher costs to consumers but they will find it harder to do so as interest rates rise further and spending growth slows," he said.
However, James also said margin pressures and earnings expectations are likely to adjust lower as economic growth slows.
"But cheaper valuations, attractive dividend yields and Australia's likely relative economic outperformance is supportive of local shares," he concluded.