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Highlights
- UBS expects ASX to reach 8500 points by mid-2025.
- Earnings upgrades and rate cuts seen as key drivers.
- Dexus, REA Group, and Newmont highlighted as benefiting stocks.
UBS has forecasted a strong rise for the ASX, projecting it to reach 8500 points by mid-2025. This bullish outlook comes from UBS strategist Richard Schellbach, who sees a combination of earnings upgrades and an emerging interest rate cut cycle as key drivers behind this upward trend. The ASX is currently trading around 8130 points, with the potential for significant gains in the coming months.
In a recent note, Schellbach emphasized that while some analysts may have been puzzled by the market's recent movements, the foundations for a continued rally are solidifying. He highlighted improving macroeconomic conditions and the outlook for interest rates as central to the current momentum driving the ASX upward. Schellbach referred to this as a potential "mini market melt-up," where equities experience strong gains due to improving sentiment and momentum.
As part of this positive market outlook, UBS has made several strategic adjustments. The firm has revised its stance on the real estate sector, moving from an "underweight" to a "neutral" position. According to Schellbach, lower interest rates and improved sentiment should allow the real estate sector to catch up with the re-ratings already seen in other cyclical sectors.
In line with these views, UBS has added several stocks to its "most preferred" list. Among them are Dexus (ASX:DXS), REA Group (ASX:REA), and gold miner Newmont (ASX:NEM). These companies are expected to benefit from potential interest rate cuts in the US and a weakening US dollar, which could provide tailwinds for their operations.
UBS continues to favor the consumer staples, industrials, and technology, media, and telecom sectors, maintaining an overweight position in these areas. Meanwhile, the firm remains cautious on banks, healthcare, and small-cap stocks, keeping an underweight stance on these sectors.
With improving market conditions and optimism surrounding rate cuts, UBS's prediction of an ASX rally reflects the growing confidence in the Australian market's performance over the next year and a half.
