Brokers still tipping 2016 to end up 21 percent

Despite the monster market rout on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) since the start of this year, a number of brokers are still tipping the Australian sharemarket to have a healthy 2016.

According to the Australian Financial Review (AFR), Macquarie Group, Citigroup and Credit Suisse are very bullish about the market’s prospects, tipping the index will close between 5900 and 6,000 – a 21% minimum rise from where it is now.

Morgan Stanley isn’t having a bar of it – forecasting the index to close at around 4,800 – roughly 50 points below where the index is currently trading – or a fall just over 1%.

AMP economist Shane Oliver has cut his expectations from 5,700 to 5,500 following the market falls so far this year, saying the market had been more volatile that he would have thought.

In case you missed it, the S&P/ASX 200 has dropped more than 8% since the start of this calendar year, following the lead of other markets around the globe, as oil prices crashed under US$30 a barrel and many other major commodities hit multi-year lows. The US Dow Jones is down more than 8%, while the broader S&P 500 has lost just under 8%. The UK’s FTSE 100 has lost 7%. One of the worst performers is China’s Shanghai market, which is down 18% so far this year.

Investors are fretting about the impact a slowing Chinese economy will have on the rest of the world, not to mention concerns that the US economy is not recovering as many had hoped.

But as Commsec chief economist Craig James told the AFR last week, “It’s just day 17. A lot can happen over the year”.

For the index to reach those lofty analyst goals, a number of heavyweight shares will need to do most of the lifting. The big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) make up more than 30% of the index, and have contributed to the recent market falls.

The big miners BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and South32 Ltd (ASX: S32) would also need to see their share prices rise substantially – but, as you might expect, they are heavily dependent on where commodities prices go.

Unfortunately, there’s very little sign of any recovery in commodities and prices are likely to stay low for many years.

Foolish takeaway

Wherever the index ends the year doesn’t necessarily mean it will be a bad year for all investors. As I wrote earlier today, forget the market and concentrate on buying shares in high-quality companies – many of which have seen their share prices tumble and are now trading at much more attractive prices.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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