Australian Equity Markets Poised for Cautious Start in 2025
Australian equity markets are expected to begin 2025 with caution, as rising bond yields and economic uncertainty are likely to weigh on growth in the early months, according to analysts at Macquarie. The forecast is based on a research note that suggests earnings rather than valuation multiples will need to drive returns in the coming year.
In 2024, the Australian equity market ended with a strong performance, gaining 11.4% for the year, despite a 3.2% decline in December. However, the market is expected to face challenges in the early months of 2025, with Macquarie advising risk-averse investors to wait for a more opportune entry point by March.
The tech sector was the standout performer in 2024, with a total shareholder return (TSR) of 48.5%, driven primarily by higher earnings. In contrast, the financials sector relied heavily on expanding multiples for its gains. The resources sector suffered a decline of 14.9% due to declining commodity prices and weaker demand from China.
Sectors such as staples and utilities, which showed resilience in December, may continue to offer defensive plays in the coming year. Meanwhile, real estate could face headwinds as rate-cut expectations recede.
Macquarie’s FOMO Meter, which measures investor sentiment, has fallen to 0.91, indicating that sentiment has cooled slightly, but investors are still bullish on the outlook. Overall, the Australian equity market is expected to be driven by earnings growth in 2025, rather than valuation multiples.