Key points
- Investors should buy the dip after ASX 200 shares suffered a weak start to the year, JP Morgan said
- The broker is forecasting strong GDP and EPS growth and notes ASX share valuations are cheap
- The ASX 200 could deliver 12% gains but this could be as high as 30% for JP Morgan's "Super 7" ASX shares
Those too afraid to buy the dip could find comfort in a leading broker's prediction that the S&P/ASX 200 Index (ASX: XJO) can deliver double-digit gains this year.
With the ASX 200 having tumbled around 8% since the start of 2022, investors have been fretting that we could be on the cusp of a much bigger sell-off.
But there seems to be little doubt by JP Morgan that this is a buying opportunity, The Australian reported on Tuesday.
Why have ASX 200 shares suffered such a weak start to 2022?
The sell-off isn't confined to ASX shares. Global equities have been struggling as expectations grew that the US Federal Reserve will need to move aggressively to lift interest rates this year. The rest of the world is likely to follow suit, including the Reserve Bank of Australia (RBA).
Record low global interest rates sitting around zero have fuelled the incredible rise in shares and property prices. Now higher rates are threatening to derail the bull market.
But the party isn't over for ASX 200 shares. JP Morgan's head of research, Jason Steed, believes shares are cheap given the economic outlook.
Good growth at discounted prices
The sharp drop in our share market has depressed the ASX 200 price-to-earnings (P/E) multiple back to its five-year average of 16.4 times.
"In 2022, our economists expect GDP growth of 3.1% y/y [year-on-year] for the calendar year, and a stronger rate of 4.4% on a 4Q/4Q basis," Steed said.
"The consumer is the dominant force driving the lift, continuing the recovery evident through most of last year.
"With our economists projecting above-trend growth this year and our analyst team forecasting a strong uplift in EPS, the valuation backdrop is compelling."
Double-digit EPS growth for ASX 200 shares
The broker is expecting ASX 200 shares, excluding the materials sector, to deliver 15% earnings per share (EPS) growth in FY22.
This should be enough to see the ASX 200 hit 7,800 by December this year, according to Steed. If he's right, this will represent a gain of almost 12% from Monday's close.
But you can probably do better than 12% if you picked the right shares to buy. Some are tipped to outperform the market.
Super 7 ASX shares to buy now
JP Morgan's analysts pooled their best buy ideas for each sector to form the "Super 7" list. These ASX shares stand out from their peers in terms of valuation and outlook.
These include the Charter Hall Group (ASX: CHC) share price, James Hardie Industries plc (ASX: JHX) share price, National Australia Bank Ltd (ASX: NAB) share price, Qantas Airways Limited (ASX: QAN) share price, QBE Insurance Group Ltd (ASX: QBE) share price, South32 Ltd (ASX: S32) share price and the Santos Ltd (ASX: STO) share price.
The average return from the Super 7 ASX 200 shares based on JP Morgan's forecasts stands at around 30%.
