The ASX share market is being dogged by worries of an imminent correction, but some experts believe the ASX is set to outpace its global peers in 2021.
Make no mistake, valuations of ASX shares are looking overstretched on several metrics after its rapid rebound since March.
The S&P/ASX 200 Index (Index:^AXJO) surged by nearly 50% since its COVID‐19 low and rocketed by a record breaking 10% in November alone!
The top large cap performers of 2020 include the Afterpay Ltd (ASX: APT) share price, Fortescue Metals Group Limited (ASX: FMG) share price and Xero Limited (ASX: XRO) share price.
Image source: Getty Images
Outlook for ASX shares brightens in 2021
Impressive as this sounds, the ASX 200 still hasn't quite fully regained all its lost during the COVID market meltdown. It's still around 7% below its February peak and is a laggard compared to global peers such as the S&P 500 Index (INDEXSP: .INX), which hit new record highs.
But don't sell your ASX stocks just yet. Next year could be the time when the ASX really shines, reported Bloomberg.
ASX 200 tipped to break new records
Strategists from AMP Ltd (ASX: AMP) and Commonwealth Bank of Australia (ASX: CBA) are tipping the ASX to break record highs in 2021. Further, Macquarie Group Ltd (ASX: MQG) is forecasting double-digit returns for ASX investors, according to the article.
The bullish assessment is fuelled by the belief that a successful COVID vaccination program will be rolled out. This will give cyclical shares a big boost and the ASX 200 is stacked with cyclicals.
Cyclicals are stocks that are most correlated to economic growth, such as miners and banks. These make up around half of our top 200 benchmark.
Earnings for ASX 200 forecast at 20% in 2021
The path of least resistance for global GDP growth is up. It's hard to think it could go any lower from the 2020 recessionary levels. The global economy is expected to contract by 4.9% this year but will surge back into the black to the tune of 5.4% in 2021.
That will still put it around 6.5 percentage points below what the International Monetary Fund was expecting for 2020 before COVID, but it's the change in growth rates that's exciting analysts.
The sharp turnaround in 2021 is the key reason why Morgan Stanley and Macquarie are expecting earnings of ASX 200 stocks to jump by 20% on average. If this comes to pass, it would mark the best earnings expansion since 2016, added Bloomberg.
"Just as 2020 was dominated by the pandemic and this determined the relative performance of investment markets and stocks, 2021 is likely to be dominated by the recovery," Bloomberg quoted Shane Oliver, the head of investment strategy at AMP Capital.
Australian shares are "likely to be relative outperformers."
