ASX 200 flirts with all-time high but Morgan Stanley, JPMorgan aren’t so bullish

Mr Steed points to cooling inflation and an expanding economy this year as key drivers behind JPMorgan’s Australian’s macroeconomic forecast.

“We expect inflation will continue to moderate in 2024, but remain above the top of the [Reserve Bank of Australia’s] target band, requiring the cash rate to remain on hold,” he said.

“Higher unemployment should act as a drag, but moderating inflation will support real income growth while the prospect of fiscal support is also firming.”

However, JPMorgan’s 7500-point forecast for the ASX 200 appears bullish, when compared with rival investment giant Morgan Stanley.

‘Proceed with caution’

In a report on Monday, Morgan Stanley Australian equity strategist Chris Nicol reaffirmed his 7350-point target, which represents a more than 250-point drop from recent levels.

Despite the gap, Mr Nicol reminded investors on Monday that when the target was set in November it represented a 10 per cent upside to the ASX’s trading levels at the time.

“The pivot in pricing of [interest] rate expectations and the subsequent rally in equities locally and abroad has seen our target eclipsed in quick fashion,” Mr Nicols said in the report.

“The rising tide has lifted many boats and stock-specific risk is elevated heading into results. All of this makes for an interesting set-up as we move further into 2024.”

Underpinning that target, Mr Nicol pointed to the Australian economy’s “continued grind and ultimately slower cycle” coming into this year. Like JPMorgan, however, he also believes hopes of rate cuts this year from the Reserve Bank of Australia may prove too optimistic.

“Our bias remains to proceed with some caution, particularly given the still-to-be seen full effects from tightening,” he said.

“The other side of the cycle is becoming clearer but the base from which to start is less evident at this juncture.”

Turning to sectors, Mr Steed cautioned that much of JPMorgan’s “sanguine” macro outlook for the Australian market may already be priced into cyclical stocks such as banks, discretionary retailers and certain industrials.

Consequently, the firm’s model portfolio has skewed closer towards defensive growth areas such as healthcare, which is now the portfolio’s largest overweight sector.

Real estate upside

“2023 was a year of normalisation for the health sector as the COVID challenges abated, but the recovery was patchy and less predictable, particularly for domestic health services,” JPMorgan analysts said in the report.

“In 2024, we are comfortable that traditional demand patterns have returned with good top-line growth expected for the internationally focused companies.”

Beyond healthcare, JPMorgan remains bullish on the real estate sector, noting its team expects modest earnings growth this year as interest rates stabilise against an improving macroeconomic backdrop.

Morgan Stanley’s model portfolio also lists healthcare as an overweight position, behind energy stocks. Major underweight positions include banks and consumer stocks.