Best returns in a decade leave experts scrambling to upgrade ASX shares

Our market is set to deliver to best returns in years if it holds on to its gains till June…

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best asx 200 shares of financial year 2021 represented by 2021 formed with gold piggy bank

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Our market is set to deliver to best returns in years if it holds on to its gains till June 30 and experts are rushing to upgrade their forecasts for ASX shares.

The S&P/ASX 200 Index (ASX: XJO) jumped by nearly 24% (before dividends and franking) since the start of FY21. What’s more, futures pricing is predicting a positive start to trade tomorrow.

The experts have largely underestimated the rebound for our economy from the  COVID-19 disaster and have also undercooked their expectations for ASX shares.

Best performing ASX shares in FY21

From the way things are going, resource shares will dominate the leader board for this financial year. The Pilbara Minerals Ltd (ASX: PLS) share price, Lynas Rare Earths Ltd (ASX: LYC) share price and OZ Minerals Limited (ASX: OZL) share price are among those leading the charge.

Outside of resources, the ARB Corporation Limited (ASX: ARB) share price and Reece Ltd (ASX: REH) share price have also more than doubled.

Despite the ASX 200 breaking a new record high, several experts believe our market is heading higher before Christmas comes around.

Can ASX 200 shares deliver an extra 10% return in 2021?

Strategists from several leading financial institutions have upgraded their forecasts for the top 200 share benchmark, reported the Australian Financial Review.

The most bullish is Exchange Traded Funds (ETF) provider VanEck. It believes the ASX 200 will crack 8,000 points this calendar year. That represents around an additional 10% price upside for the index.

If its experts are right, the calendar return for the index would hit 21.4%. The AFR reckons this would be the best gain since 2009 after ASX shares rebounded strongly from the GFC.

VanEck’s bullish view was triggered by the better-than-expected GDP data for our economy. Australia expanded 1.8% in the March quarter and VanEck is forecasting GDP growth of 5% for 2021. That makes the RBA’s 4.75% prediction look conservative!

Experts rushing to upgrade forecasts for the ASX 200

Meanwhile, Commonwealth Bank of Australia (ASX: CBA) upgraded its estimates for the ASX 200 by 150 points to 7,350. That’s below JPMorgan’s 500-point upgrade in May for the benchmark to close at 7,500 for the calendar year.

JPMorgan believes that ASX mining shares will continue to power the market higher, but they will be supported by ASX banks.

The operating outlook for ASX banking shares has brightened significantly alongside our rapidly expanding GDP.

While ASX banks, like the CBA share price, have outperformed recently, these shares could still rally further due to dividend upgrades.

ASX 200 share valuations starting to look overstretched

Morgan Stanley also joined its peers and lifted its forecast for the top 200 index by 100 points last month to 7,200. But it warned that valuations are looking stretched as share prices are increasing faster than expected profits.

“We do see some price upside on a 12-month time horizon,” the AFR quoted Chris Nicol, Morgan Stanley’s Australian equity strategist.

“However, the bulk of expected total return will fall to income as dividend profiles continue to be rebuilt post COVID.”

Brendon Lau owns shares of Commonwealth Bank of Australia, Oz Minerals Limited, Lynas Rare Earths Ltd and Reece Ltd. Follow me on Twitter @brenlau.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ARB Corporation Limited. 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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