Why Australian stocks can boom this year

This year, the Australian stock market could grow past the 6000 level, last seen almost 10 years ago, all thanks to a boost in corporate earnings.

According to Deutsche Bank, Australian equities are forecasted to grow by close to 14% in Fiscal Year 2017 (FY17). And unlike what usually happens with earnings forecasts – starting high and ending low – this time they have been upgraded since mid-2016.

Source: Mason Stevens Daily

This is especially important considering that, over the past 5 years, Australian companies had no cumulative earnings growth. As Goldman Sachs notes, the second half of FY16 was the first time since the financial crisis when cyclical industrial stocks had forecasts upgraded.

The earnings boost is mostly due to the resources sector, however, thanks to recovering commodity spot prices. The rest of the market is expected to grow by about 7% (which is still better than the long-run average of 5%).

Source: Mason Stevens Daily

Deutsche Bank predicts better earnings performance for banks when compared to industrials, thanks to better momentum, cheap valuations, and poor analyst sentiment. Industrials, on the other hand, are expected to have an unexciting 2017, with forecasted earnings growth at around 5%.

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The information contained in this article is General in nature and has been prepared without taking into account your objectives, financial situation and needs.

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