Investing.com-- Australian stocks are expected to push higher in the coming year amid persistent optimism over lower interest rates and improving economic growth, although their pace of gains is expected to moderate, UBS analysts said.
UBS expects the benchmark ASX 200 index to finish 2025 at 8,850 points- a record high, and a 5% upside from current levels. The ASX 200 is trading up 10.6% so far in 2024.
The brokerage said the Australian economy and stocks appeared to be a “relative ‘safe port’” amid heightened trade and geopolitical uncertainties. They expect local buying to also support stocks, and that investors could buy into the market seeking shelter from heightened U.S.-China tensions.
Australia does not have enough trade exposure to the U.S. to draw tariff-related ire from President-elect Donald Trump. Washington and Canberra have also maintained close relations on the security front, making Australia a key ally in the Asia-Pacific region.
This relationship saw Australia subject to little tariff action during Trump's first term.
UBS expects mid-single-digit earnings growth from Australian companies in 2025, as an earnings downgrade cycle seen since 2022 comes to a close and the Reserve Bank begins cutting interest rates. UBS expects the RBA to kick off its easing cycle from May 2025.
The brokerage said it preferred technology stocks on persistent themes of artificial intelligence demand. Australian insurance stocks stand out on their “strong pricing power and attractive relative valuation. Industrials are also attractive based on their exposure to the U.S. economy.
UBS expects Australian mid-cap stocks to clock further outperformance in 2025, on strength in tech, classifieds and healthcare stocks.
The ASX 200 surged to record highs in November as expectations of improving global economic growth spurred plays into economically sensitive sectors. Major mineral and mining stocks in Australia also benefited from bets on more stimulus measures in China, which is a key export destination.