The S&P/ASX 200 Index (ASX: XJO) had a scorcher of a day, rising 1.76% at one point to hit a new all-time record of 8,446.4 points in afternoon trading on Tuesday.
At market close, the index was 8,374 points, up 0.89%.
Top broker Morgan Stanley thinks the benchmark index has more room to run.
According to The Australian, Morgan Stanley has raised its year-end forecast for the benchmark index to 8,500 points.
This is 5% higher than the broker's previous forecast of 8,100 points.
If the broker is correct, 8,500 points on 31 December would represent a 12% increase over the year.
And that's just the capital gain.
We typically get about a 4% dividend from ASX 200 stocks, so we're talking about a potential total return of 16% in calendar year 2024.
This would be well above last year's capital gain of 8.1% for the ASX 200 or about 12.1% with dividends.
Why did Morgan Stanley upgrade its ASX 200 forecast?
Morgan Stanley equity strategist, Chris Nicol, explains:
Our update takes into consideration a market forward multiple of 17.0 times and earnings base of 500.
The equity rally this year has taken the market to now be ~1% above our 8,100 price target – but to be clear the earnings we assumed that would get us to these levels are some 13 per cent above current expectations – and FY25e EPS growth for the market now sits close to zero.
This earnings gap needs to be closed.
Whilst the ASX 200 does indeed comprise 200 companies, they have varying market capitalisations.
This means the performance of the broader index hinges heavily on the performance of the largest stocks.
All five of our biggest banks are among the top 10 ASX 200 stocks, and boy, have they had a run in 2024.
Analysts continue to shake their heads over Commonwealth Bank of Australia (ASX: CBA) shares, in particular.
The CBA share price has ascended from a closing value of $111.80 on 29 December 2023 to yet another all-time record high of $157.28 today.
That's a 40% share price increase.
The ASX 200 banking giant closed at $155.61 today and is now trading at a 27.33x price-to-earnings (P/E) ratio, according to the ASX.
Broker likes ASX 200 mining stocks for 2025
Nicol says its time for ASX investors to prepare for a rotation out of the ASX 200 bank stocks.
According to the Australian Financial Review (AFR), he thinks investors should broaden their investments into other market sectors, including ASX 200 mining stocks.
Morgan Stanley has positions in iron ore giants BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO).
It's also invested in gold producer Newmont Corporation CDI (ASX: NEM) and diversified base metals miner South32 Ltd (ASX: S32).
Morgan Stanley also likes Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS) in the ASX energy sector.
It also has new optimism about uranium after a 15% fall in the commodity's value this year. The broker is invested in the uranium sector via holdings in Paladin Energy Ltd (ASX: PDN) shares.
What do other experts think?
UBS thinks the ASX 200 will reach 8,500 points next year.
JPMorgan is bearish and predicts a fall to 7,900 points by year's end.
AMP Ltd (ASX: AMP) upgraded its end-of-year forecast for the ASX 200 from 7,900 points to 8,100 points in July.
But AMP chief economist Dr Shane Oliver recently commented that this now appears "too conservative".
In an October blog, Dr Oliver said:
A recession is the main threat for shares, but its looking like our 8100 year-end target for the ASX 200 is too conservative.
