By now, most ASX investors would be pretty used to rising markets and higher ASX shares. The S&P/ASX 200 Index (ASX: XJO) has been trending sideways for several months. Even so, it's still up a healthy 10.6% year to date so far. And an even healthier 12.7% over the past 12 months. And since the lows of last year's COVID crash, the ASX 200 has climbed by more than 50%.
But today, COVID-era economic stimulus is slowly being dialled back. There is the prospect of higher interest rates in the medium term. And the ongoing waves of global COVID infections are still sadly rolling on. As such, many an investor might be wondering "where to next?" for ASX shares and the Australian (and global) share market.
Well, one fund manager has a few ideas.
Paul Xiradis, chief investment officer and executive chair at fund manager Ausbil, gave us some insights into where he sees the share market going next.
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Fundie predicts strong FY22 and FY23 for ASX shares
Xiradis points out that 25 of the 32 sectors on the ASX "are expected to deliver positive EPS [earnings per share] growth in FY22, representing 80% of the market cap for the S&P/ASX 200".
He went on to say the following:
We do not believe Australian equities are too expensive on average when you consider them in relative terms against where long-term interest rates are sitting, and their forward earnings growth outlook…
We look at the future earnings growth profile for equities when assessing if sectors are cheap or expensive. On a forward EPS growth view, we believe resources (specifically battery materials, electrification metals and some bulk commodities), banks, general insurance, structural growth leaders and some of the post-lockdown beneficiaries are offering strong potential EPS growth for FY22 relative to value…
Fundamentally, we believe the current economic environment is favourable for equities, and will be for the next year or so.
But FY22 only takes us to next July, which is less than 8 months away now. Luckily for investors, Xiradis is also bullish on FY23:
Our view is that FY23 earnings expectations will also be positive, with growth driven by a very strong post-Delta variant bounce-back, which will be evident in the final months of this calendar year, and will have duration into FY23.
Given the rapid progress on vaccines, we believe earnings growth is likely to surprise again.
At the end of the day, none of us can predict the future. And certainly not the future of the share market. However, many investors will no doubt be pleased with the predictions Xiradis has made and will be keeping their fingers crossed they come to pass.
