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6,000 in sight for the ASX 200

There are growing signs of optimism in the market, with a number of analysts suggesting that the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) could be on its way up towards the 6,000 point mark by June next year.

The predictions have been made in light of the Coalition’s election win last week, which has boosted the sentiment of businesses and investors. Meanwhile, confidence has also reemerged in the resources sector (which has soared over 20% since late June) as commodity prices remain strong and resilient, contributing towards growing signs of an economic recovery in China.

According to Don Williams, the chief investment officer at Platypus Asset Management, Australian shares could be in for a stellar bull run should double-digit earnings growth be realised this financial year whilst volatility remains low. He said, “We think the six months to June will be better and we see the potential for Australian shares to start outperforming other markets.”

Others, such as Bell Potter Securities stockbroker Charlie Aitken, have predicted that the 6,000 point mark will be reached within the next 12 to 18 months – a level that has not been experienced since prior to the GFC. It is predicted that the lower Australian dollar will have a positive effect on company earnings in future earnings seasons, which were not yet realised by companies in the August reporting season.

What could prevent the 6,000 point target?

Whilst it is certainly a viable prediction that the benchmark index could hit 6,000 points by June, there are also a number of factors that could hinder this target.

Credit Suisse equity strategist Damien Boey maintains an end of year target of just 4,600 points, which he believes will be the result of Australia’s heavy exposure to China, volatile commodity prices and the potential for the US Federal Reserve to begin tapering off its bond-buying program.

On the other hand, JPMorgan senior economist Ben Jarmen believes that roughly $10 billion worth of Fed tapering has already been priced into the Australian market, whereby a small reduction in quantitative easing should not affect the market in any significant way.

Foolish takeaway

From today’s level of just above 5,210 points, the index would still need to climb 15% to reach the 6000 point mark, which highlights that there are still significant gains to be made. Companies such as Cochlear (ASX: COH) or Westfield Group (ASX: WDC) still appear to be reasonably priced and could boost the value of your portfolio for years to come.

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Motley Fool contributor Ryan Newman owns shares in Cochlear.

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Returns as of 6th October 2020

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