ASX shares looking awesome for next year: economist

While the Australian dollar will hit 80 US cents! Check out the reasons why.

| More on:
Bag of money sitting on top of wooden blocks spelling out 2021

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares are set to boom over the next 6 to 12 months, according to one prominent economist.

AMP Capital chief economist Shane Oliver said Tuesday that the successful suppression of COVID-19 in Australia is stimulating the economy.

"Our Australian Economic Activity Tracker edged higher over the last week and is continuing to trend up nicely in contrast to the weaker trends in the US and Europe," he told Switzer Daily.

"All things being equal this should be relatively positive for the Australian share market and the Australian dollar."

Australian shares just finished their best month in more than 30 years. Both the All Ordinaries Index (ASX: XAO) and S&P/ASX 200 Index (ASX: XJO) climbed 10% in November.

As such, Oliver expects there could be a "short term pause" — but the market will pick up again.

"We are now into a seasonally strong period of the year for shares and on a 6- to 12-month view shares are expected to see good total returns on the back of ultra-low interest rates and a strong pick-up in economic activity helped by likely vaccines."

Moody's Investors Service last week was also upbeat about the Australian market.

"The broad diversification of Australian industry, and the flexibility and competitiveness of the economy will support a sustainable recovery over the next few years, with limited likelihood of severe financial stress destabilising the economy," said Moody's vice president Martin Petch.

Stimulus and vaccines also tailwinds for Aussie shares

Government assistance is putting a rocket under ASX shares too.

"First NSW now Victoria – fiscal stimulus continues to ramp in Australia as states take on board the RBA's advice to provide plenty of stimulus," said Oliver. 

"The extra stimulus in Victoria – focussed around infrastructure, housing, regional Victoria and hospitals – will add another 1% to national fiscal stimulus in this financial year, which is similar to that from NSW."

Petch agreed that Australian government handouts have had the desired effect.

"The government's substantial stimulus package highlights Australia's flexibility and capacity to use fiscal policy to support its credit profile in a difficult global economic environment," he said.

The news about the potential of multiple coronavirus vaccines is also pumping up optimism, according to Oliver.

"There is a good chance based on current production plans along with those who have already had the virus of reaching herd immunity globally by the end of 2021 or early 2022, particularly with AstraZeneca-Oxford committing to selling their vaccine without profit across a large part of the developing world."

Australian dollar to hit 80 US cents

Unfortunately the northern hemisphere is currently dealing with a third wave of COVID-19 as it heads into winter.

European cases seem to be plateauing thanks to a fresh round of restrictions, but the US is worryingly still climbing up.

"In the US there are only tentative signs of a slowing in new cases with deaths rising well above the August high which in turn is resulting in more areas tightening restrictions," said Oliver. 

"Japan and Canada are also seeing a strongly rising trend in new cases."

Therefore the strength of the Australian economy might mean bad news for our exporters, according to Oliver.

"Although the Australian dollar is vulnerable to bouts of uncertainty about coronavirus, the economic recovery and China tensions and RBA bond buying will keep it lower than otherwise, a continuing rising trend is likely to around $US0.80 over the next 12 months helped by rising commodity prices and a cyclical decline in the US dollar."

The Australian dollar was as low as 58 US cents in March amid the first wave of COVID-19. It's currently sitting at 73 US cents. 

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. 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 Scott Phillips.

More on Share Market News

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »