(Bloomberg) -- Australia’s record-breaking stock rally is poised to extend as signs of more policy support emerge and investors look for markets largely shielded from geopolitical tensions.
The benchmark S&P/ASX 200 Index has climbed 10% so far this year to 8,354, hovering near a record last week. The benchmark is estimated to top 8,850 points by the end of 2025, according to a Dec. 5 UBS Group AG note. Morgan Stanley and AMP Ltd. also anticipate an Australian equities spike.
The momentum is further backed by an estimated 5.3% uptick in 2025 earnings-per-share, according to Bloomberg-compiled data. The Reserve Bank of Australia’s dovish turn this week, owing to its confidence that inflation is moving toward its target, is also prompting bets of an early interest rate cut that would fuel the equity market.
Globally, some pivotal developments for next year — including Donald Trump’s return to the White House and vow of higher tariffs plus China’s stimulus implementation to shore up the struggling economy — portend market gyrations. But they can also give room for Australia to showcase its standing, as it has done this year, that it’s a relatively safe place for sheltering capital in turbulent times.
“The stock market ‘melt-up’ looks set to continue through 2025 on rate cuts, improving macro, tech/AI, and leadership from the US market,” UBS equity strategist Richard Schellbach wrote in his note. “The Australian economy, and its equity market, seems like a relative ‘safe port’ in a world abound of trade and geopolitical uncertainty.”
The country’s fiscal policy also is seen as more ammunition for equities. The incumbent government’s fiscal spending ahead of the federal election due by May will continue to drive growth, though the policy may shift post-election, Morgan Stanley analysts wrote in a Dec. 10 note.
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Beijing’s stepped-up rhetoric on stimulus - including a “moderately loose” monetary policy and “more proactive” fiscal policy in the new year — could spur more demand in the world’s second largest economy. That may have spillover beneficial effects on Australian resource stocks, Billy Leung, an investment strategist at Global X ETFs, said. China’s “policy has the potential to boost commodity demand,” Leung said.
Australian stocks’ path next year will have potential pitfalls. Lower interest rates could compress margins for banks, Leung noted. The country’s economy also remained tepid last quarter, with gross domestic product’s growth rate at its weakest reading — excluding the pandemic — since December 1991.
Meanwhile, the ongoing conflicts in the Middle East and Ukraine, along with US-China trade tensions, also could prove to be headwinds for global and Australian equities, Shane Oliver, head of investment strategy at AMP, wrote in his note.
“2025 is likely to see positive returns, but after the surprising calm of 2024, it’s likely to be far more volatile and more constrained,” he wrote.
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