(Bloomberg) -- Australia’s stock market looks primed for another strong showing in 2025, as the likelihood of easy central bank policy boosts sentiment and China’s stimulus pledges support miners.
The benchmark S&P/ASX 200 Index is up 9.5% in 2024, trading just below a record reached earlier this month. Technology and financial stocks have led the advance, with a banking gauge set for its best year since 2009. In contrast, mining and energy shares have slumped on soft commodity prices.
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The landscape may shift next year as investors pile into resources shares and other sectors tied to China’s stimulus push. Meanwhile, the expected monetary policy easing may squeeze lenders’ net interest rate margins and cap gains for financial stocks.
“Positive equity market returns are expected in 2025, though more moderate than in 2024,” said Anna Milne, senior analyst at Wilson Asset Management in Sydney. When “China’s stimulus effects begin to unfold, there is potential for a sharp rotation from banks to miners.”
Milne said she plans to take a more defensive stance at the start of year, anticipating escalating trade tensions after President-elect Donald Trump’s inauguration. She then intends to shift toward more cyclical sectors as the global growth outlook becomes clearer.
Here’s a look at some notable moves in 2024:
Sky-High Banks
The nation’s banking shares stood out after a sectoral gauge rose more than 30% in 2024, the most in 15 years, on higher-for-longer interest rates.
Now, with the Reserve Bank of Australia set to cut rates, they could face earnings risks from compressed net interest margins — a key metric of profitability — and increased competition.
The country’s lenders are also among the most expensive in the world, with the banking gauge trading at a price-to-earnings ratio that tops their global peers, according to data compiled by Bloomberg.
“China stimulus and sector rotation is a risk for bank multiples in 2025, although their reputation for predictable and stable dividends and capital return does make the banks somewhat defensive,” said UBS Group AG analyst John Storey.
Key stock moves: Commonwealth Bank of Australia +43%, Westpac +44%, NAB +24%, ANZ Group +13%
Resources Rotation
Beijing’s vow to increase government spending will likely benefit Australian resources stocks. A measure of local mining shares is on track for the worst year since 2015, as China’s property slump drags on commodities.
“As the market awaits visibility on tariff risk versus China stimulus benefits, we see opportunities for exposure to resources,” Morgan Stanley analysts including Rahul Anand wrote in a Dec. 15 note.
“Despite higher-than-normal iron ore inventories, steel inventories in China remain lower than 2019 levels creating iron ore restock opportunity,” they wrote, preferring BHP Group Ltd. over rival Rio Tinto Ltd.
However, a sustained mining rally will require more details on the stimulus measures, according to David Cassidy, head of investment strategy at Wilsons Advisory.
Key stock moves: BHP -20%, Rio Tinto -13%, Fortescue Metals Group -36%, Champion Iron -33%, Mineral Resources -51%
Re-Energized
Sluggish oil and gas prices have weighed on Australia’s energy stocks, but the tide may be turning. The local energy sub-gauge’s 22% slide has made it the worst-performing sector this year, driven largely by gas project delays.
Woodside Energy Ltd. and Santos Ltd. may be supported by higher liquefied natural gas prices in the longer term as a result of Trump’s tariff and energy policies.
Key stock moves: Woodside Energy Group -24%, Santos -15%, Karoon Energy -37%
Scandal-Fueled Slumps
Accusations of operational or ethical failures rattled stock prices across Australia’s equity market.
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Shares of WiseTech Global Ltd. experienced a roller-coaster ride after Chief Executive Officer Richard White was forced to step down, ultimately leading the cargo software company to cut its guidance. Similarly, Mineral Resources Ltd.’s shares plunged after founder Chris Ellison faced allegations of tax evasion.
Key stock moves: WiseTech Global +61%, Mineral Resources -51%, Tabcorp Holdings -29%, Star Entertainment -60%, Woolworths Group -16%, Coles Group +16%
Qantas, Zip Standout
Australia’s national carrier, Qantas Airways Ltd., is among the top-performing airline stocks in Asia, and is set to extend its climb on weaker fuel prices.
Additionally, digital payments firm Zip Co. has emerged as the sector’s biggest gainer globally, soaring over 350%. Surging US demand has buoyed Zip thanks to falling interest rates and a focus on curbing costs — trends that analysts expect to continue into 2025.
Key stock moves: Zip +391%, Qantas +72%
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