Weaker resources sector and big bank growth weighs on Credit Suisse forecast
(27 May 2015 – Australia) Credit Suisse has forecast a flat 12 months for Australian stocks due to the resources sector and the big four banks weighing on the market.
The investment bank has downgraded its 12-month target for the S&P/ASX200 from 6400 points down to 5850 points – just 2 percent above its current levels.
Credit Suisse Australia chief investment strategist David McDonald said the local market had been one of the most disappointing performers globally in the past couple of months.
He attributed the change in the bank’s view to a weaker-than-expected earnings outlook for the big banks and resources companies, combined with a relatively strong Australian dollar.
He said unfortunately the resources sector had performed worse than Credit Suisse had forecast earlier this year, while recent profit results suggested earnings growth would be tough to come by for the big four banks.
"We have continued to see negative revisions to earnings of commodity producers," he said.
"On top of this, the recent bank earnings season disappointed market expectations."
Given the size of the two sectors in Australia, he said that made it hard for the ASX to pull ahead significantly.
"That's 50 percent of the market that has been a drag," he said.
He also said despite providing a boost for retailers, the recent federal budget, which included a A$5.5 billion small business package, had no notable impact on the market.
Meanwhile, while the Australian dollar was much lower than a year ago, it was still stronger than many would have hoped.
That meant companies with strong international earnings and exporters weren't benefiting as much as had been expected.
Credit Suisse still expects the dollar to move lower once the US Federal Reserve starts lifting interest rates, which is likely to happen later this year.
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