Near all-time highs, why the ASX 200 could keep running higher

Share markets have had stellar year. And these experts think global shares have further to run.

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The S&P/ASX 200 Index (ASX: XJO) is edging higher in afternoon trade.

At time of writing, the ASX 200 is up 0.1% at 7,320 points. That’s within a whisker of the index’s all-time closing high of 7,386, reached only 3 weeks ago on 16 June.

Despite retracing slightly from the record highs, it’s also still 2.5% above its pre-COVID closing high of 7,139, set on 21 February 2020.

And in case you’re wondering, the ASX 200 has now gained a rather astonishing 52% since the post pandemic closing low of 4,817 points on 20 March 2020.

This same trend has played out across most major global indexes.

In the United States markets, for example, the S&P 500 (INDEXSP: .INX) closed at another new record high on Friday. (Markets were closed yesterday – overnight Aussie time – for the July Fourth holiday.)

The S&P 500 is up 18% in 2021 and up an eye-popping 89% from the 20 March 2020 pandemic lows.

These kinds of rapid fire gains have many investors feeling a bit skittish that the bull run may be coming to an end. Yet, while there are reasons to be cautious, many market experts believe share markets can keep running higher into 2022…or beyond.

3 reasons the ASX 200 could reset record highs

The top 3 reasons analysts point to in supporting an extended bull run for share markets are the strong rebound in corporate earnings, continued support from global central banks with rock bottom interest rates and quantitative easing (QE), as well as vaccination programs getting ahead of the virus.

We’ve already seen these factors help boost the ASX 200 to new records. But as Bloomberg reports, big names like BlackRock Inc, State Street Global Markets, UBS Asset Management and JPMorgan Asset Management all “expect equity markets to keep rising in the second half of the year”.

Esty Dwek is head of global market strategy at Natixis Investment Managers. According to Dwek:

Vaccination is accelerating globally, major central banks remain extremely accommodative, fiscal support is still present and earnings continue to recover. In such an environment, it is difficult to imagine a very negative scenario for equities.

Marija Veitmane, senior multi-asset strategist at State Street Global Markets agrees that getting a handle on COVID is crucial to supporting the continued bull run. “We still see the success in vaccinations and economic re-opening as the key driving force behind improving economic and earnings outlook, and ultimately equity market gains,” Veitmane said.

Cash on the sidelines

Another factor likely to offer healthy tailwinds to global share markets, like the ASX 200, is that there is still a tremendous amount of money sitting on the proverbial sidelines. And this in an environment with near record low bond yields and cash deposit rates.

How much money?

According to Goldman Sachs (as reported by Bloomberg), US money-market fund assets reached a record US$5.5 trillion (AU$7.2 trillion) during the pandemic.

Carsten Roemheld, capital markets strategist at Fidelity International, says that, “Many indicators suggest there is still overwhelming liquidity in the system that is looking for a home.”

Of course, we can’t expect the same skyrocketing returns over the next 12 months we’ve witnessed over the past 12 months. You have to remember the ASX 200 and other global markets were recovering from a historic pandemic hit.

As for the simmering fears of central banks raising interest rates, signaling the end to the easy money that share markets love, Ben Lofthouse, head of global equity income at Janus Henderson Investors, doesn’t believe that’s a current concern. “For now, monetary policy and fiscal policy remain loose around the world and, in reality, it will be some time before rates start to rise,” he said.

Claudia Panseri, a global equity strategist at UBS Global Wealth Management, agrees. According to Panseri:

The market is usually down quite a bit when you have growth scares and when you believe that there will be a strong tightening or big change in the monetary policy. And I think that both conditions are still not in place to have a major correction.

Nigel Bolton, head of BlackRock’s Fundamental European Equity team, sees the bull run potentially continuing into 2023:

We see really strong earnings growth, not just for this year, not just the bounce back, but actually going forward into 2022 and also, at a slower pace, into 2023 as well. So all of those factors are the reasons why you are still looking at a bull market and we will have wobbles on the way.

Now all shares are not created equal. So which ones are likely to run hottest in the year ahead?

According to Seema Shah, chief global strategist at Principal Global Investors, “Within equities, cyclicals and value should continue to benefit from the likely surge in consumer spending, but investors should also consider secular growth stocks, such as mega-cap technology.”

How the ASX 200 has moved this year

Following a stellar recovery from the COVID-fuelled market meltdown, the ASX 200 has continued to march higher in 2021.

Year-to-date, the index has gained 9.2%.

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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 no position in any of the stocks mentioned. 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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