Analyst tips 6000 points — and rising

THE share market’s recent gains could still have some way to run, with the index headed to well above the 6000-level in the near term, according to an analysis by Citigroup.

The benchmark S&P/ ASX200 index, currently trading in the low 5900s range, jumped more than 250 points, or 4.4 per cent, in October alone.

The local market is now starting to reflect the broader global recovery, and a number of domestic and international factors could play a part in its continuing run, Citi’s head of equity market strategy Tony Brennan says.

“There would seem scope for the market to continue to move higher in the shorter term, with spot commodity prices suggesting more earnings upside, possible further support if the US dollar strengthens relative to the Australian dollar and US tax cuts occur,” he said.

He said he expected the ASX200 to reach 6250 by mid-2018, but gains were likely to be more limited thereafter.

Underpinning the improved prospects has been an upgrade in expected earnings since the latest profit reporting season ended, particularly for the resources sector.

Since September 14, analyst estimates for overall 2017-18 earnings per share growth for ASX200 companies have risen from 3.7 per cent to 5.3 per cent, according to the Citi report.

Within this, expectations for EPS growth for resources companies have jumped from 0.3 per cent to 5.8 per cent, on the back of higher-than-anticipated commodity prices.

“Resource earnings remain the more variable component of market earnings and our analysis indicates more upward revisions would be implied by the persistence of current commodity prices, even with the important iron ore price well down from earlier highs,” Mr Brennan said.

While commodity prices are volatile and analysts remain sceptical about assuming that current prices will persist, the broad-based upswing in the global economy could help sustain support.

In addition, confidence about the local economy has improved, luring investors back into the market.