The Australian sharemarket is bracing for another year of modest returns, with investors identifying domestic challenges rather than escalating Middle East tensions as the primary hurdles. While the price of oil edged closer to US$80 a barrel following renewed US-Iran strikes, its immediate impact on the local bourse remained limited. Traders indicate that Australia’s restricted exposure to artificial intelligence (AI) and the prospect of diminishing earnings from the ‘big four’ banks, which constitute roughly one-quarter of the S&P/ASX 200’s value, present more significant headwinds.
Experts note the Middle East flare-up had minimal effect on the ASX, which closed marginally higher on Monday. Plato Investment Management’s Dave Allen remarked that markets have become accustomed to regional conflicts, with performance drivers largely disconnected from the Strait of Hormuz. Instead, focus shifts to the banking sector. Canaccord Genuity’s David Cassidy highlights weakness in bank earnings as a critical issue, anticipating pressure from slower home loan growth, potential mortgage pricing wars, and a rise in business loan defaults. This was underscored by Judo Capital’s recent warning of $75 million in souring loans.
The ASX has underperformed global indices significantly this year, returning less than one per cent compared to double-digit gains elsewhere. Ten Cap chief investment officer Jason Todd anticipates the local bourse, hovering around 8810 points, will struggle to exceed 9100 points by year-end, potentially dropping to 8400. He attributes this cautious outlook to tight monetary policy, subdued consumer confidence, slowing housing activity, and earnings risks in banks and healthcare, alongside the country’s limited AI exposure. Cassidy reinforced that banking headwinds and a lack of tech exposure would fundamentally drag on ASX returns.
