A recession could threaten this though
As 2024 began, Australia's financial community arrived at a rare moment of collective optimism: after a year of watching American markets surge ahead, the local share market appeared poised to reclaim ground. Analysts saw in the ASX's cheaper valuations, China's tentative recovery, and a softening US dollar the conditions for a reversal of fortune — though they were careful to note that history rarely delivers its promises without turbulence. The year ahead would be shaped by forces both familiar and unpredictable, from central bank decisions to geopolitical tremors, reminding investors that confidence and certainty are never quite the same thing.
- After trailing a tech-driven American rally in 2023, the ASX entered 2024 with forecasts of 9–10% gains and a target range of 7,775 to 8,200 points — a meaningful reversal that had analysts repositioning with conviction.
- The Australian dollar, long subdued against the greenback, was expected to climb to 72–75 US cents, buoyed by China's economic recovery and a weakening US dollar — a shift with consequences far beyond currency desks.
- Beneath the bullish headlines, Shane Oliver's forecast quietly embedded a 10% market correction mid-year, a reminder that the path to record highs would likely pass through a period of real pain around the 6,700-point mark.
- The interest rate question refused to resolve cleanly — with NAB giving even odds on one more RBA hike before cuts, and Tribeca's Jun Bei Liu arguing Australia might see no cuts at all in 2024, even as markets were already pricing in relief.
- Recession, sticky inflation, a sharper Chinese slowdown, and a crowded geopolitical calendar — from Taiwan's election to the US presidential race — formed a credible coalition of risks capable of undoing the consensus thesis entirely.
- Markets were landing in a paradox of their own making: rallying on hopes of rate cuts that, historically, signal economic weakness rather than strength, with corporate earnings not yet reflecting the softening that analysts widely expected.
When 2024 opened, Australia's major market analysts had arrived at an unusual degree of agreement: the ASX was about to outperform. After a year in which the local market rose modestly while American indices — led by a surging Nasdaq — left it behind, the conditions for a reversal seemed to be falling into place.
The forecasts were specific. AMP put the ASX 200 at 7,775 points by year's end, a nine percent gain including dividends. Tribeca Capital aimed higher, at 8,200 points. Both expected the Australian market to pull ahead of the S&P 500. On currency, NAB forecast the Australian dollar at around 73 US cents, while Betashares saw it reaching 75 cents as the US dollar softened.
The logic rested on a few pillars. Australian stocks carried cheaper valuations than their American counterparts — a classic signal of opportunity. China's return to growth would drive commodity demand and support the dollar. And large-cap US technology stocks, having run hard in 2023, looked vulnerable to correction. Resources and industrials, argued Tribeca's Jun Bei Liu, would be the engines of Australian outperformance.
But the optimism came with caveats. AMP's Shane Oliver built a 10% mid-year correction into his own bullish forecast, with the ASX dipping to around 6,700 before rallying to record highs. A recession, he warned, could derail everything. Sticky inflation might keep central banks tighter for longer. A sharper Chinese slowdown would hurt commodities. Geopolitical events — Taiwan's election, a possible US government shutdown, the November US presidential vote — could trigger sudden swings. NAB's Gemma Dale flagged that Australian banks may have reached peak profitability, with loan delinquencies likely to rise as higher rates worked through the economy.
Interest rates hung over the entire picture. The RBA had held at a 12-year high of 4.35% in December, and underlying inflation remained stubbornly elevated. NAB saw a coin-flip chance of one more hike before cuts arrived. Oliver expected the RBA to begin easing around June, in step with the Fed and the ECB. Liu disagreed — her base case was no Australian rate cut in 2024 at all, though even the prospect of cuts would likely lift markets. Australia's slower path to easing, she argued, would actually support a stronger Australian dollar.
The deeper paradox was one markets were already living: share prices were rallying on hopes of rate cuts, even though cuts historically signal that the economy has weakened enough to need them. Dale thought the optimism looked excessive, with corporate earnings not yet reflecting the softening she expected. The year ahead, the consensus agreed, would be volatile — the destination promising, the road uncertain.
As 2024 opened, a consensus was forming among Australia's major market watchers: the local share market was about to have its moment. After a year of underperformance—the ASX rising modestly while American indices, particularly the tech-heavy Nasdaq, surged ahead—analysts were positioning the Australian market to reverse course and outpace its global peers. The Australian dollar, too, was expected to climb against the US greenback, a shift that would ripple through currency markets regardless of whether interest rates fell or held steady.
The forecasts were specific and bullish. AMP predicted the ASX 200 would close 2024 at 7,775 points, a nine percent gain including dividends. Tribeca Capital was even more optimistic, targeting 8,200 points—roughly ten percent growth before dividends were factored in. Both firms expected the S&P 500 to reach somewhere between 4,900 and 4,950 points, suggesting the Australian market would pull ahead. On currency, NAB saw the Australian dollar trading around 73 US cents by year's end, while Betashares thought it could climb as high as 75 cents as the US dollar continued to soften.
The reasoning behind this shift was straightforward. Jun Bei Liu, a portfolio manager at Tribeca Capital overseeing more than $800 million in funds, pointed to the resources and industrial sectors as the engines of outperformance. China's return to economic growth would be crucial—driving demand for commodities and supporting the Australian dollar. The Australian market also carried cheaper valuations than its American counterpart, a classic signal of opportunity. David Bassanese, chief economist at Betashares, added another layer: large-cap US technology stocks had become relatively expensive, making them vulnerable to correction. Shane Oliver, AMP's chief economist, agreed the ASX would likely outperform once dividends were included, helped by more attractive valuations and the prospect of easing concerns about Chinese growth and Australian consumer weakness later in the year.
But Oliver came with a warning. His forecast baked in a ten percent correction along the way—the ASX 200 dipping to around 6,700 before rallying to record highs later in the year. A recession, he cautioned, could derail the entire thesis. The risks were real and multifaceted. Sticky inflation could force central banks to keep rates higher for longer, weakening economic growth. A sharper-than-expected slowdown in China would undermine commodity demand. Geopolitical tensions—ranging from Taiwan's election to a potential US government shutdown in January to the US presidential election in November—could trigger sudden market swings. Gemma Dale at NAB warned that financials faced headwinds; banks might have reached peak profitability, and as higher rates bit into the economy, loan delinquencies could rise. Materials, despite hopes for a China reopening, had disappointed, though the US Inflation Reduction Act was creating new demand for renewable energy commodities, even as lithium prices had recently fallen.
The question of interest rates hung over everything. The Reserve Bank had held rates at a 12-year high of 4.35 percent in December, resisting another hike to avoid pushing unemployment higher. Underlying inflation in Australia remained stubborn, higher than in comparable economies, and the RBA warned it could take longer than expected to fall to its two-and-a-half percent target. NAB saw a 50-50 chance of one more rate increase before cuts began later in 2024. Oliver expected the RBA to start cutting around June, in line with the European Central Bank, the US Federal Reserve, and the Bank of England. But Liu held a different view: her base case was no rate cut in Australia in 2024, though even the discussion of cuts would likely drive markets higher. Australia would lag the US in cutting rates, she argued, which should support a stronger Australian dollar.
The paradox was that share markets historically fall after central banks begin cutting rates—a sign that the economy has weakened enough to require stimulus. Markets were rallying in December on hopes of cuts, but Dale thought that optimism seemed excessive by historical standards. The US and Australian economies would likely soften, she expected, leading to falling corporate earnings that were not yet reflected in equity prices still pricing in a soft landing. For the Australian dollar, the Federal Reserve's moves would push the US dollar lower while the RBA's "higher for longer" stance would put a floor under the Australian currency and create upward pressure.
So the stage was set for a year of competing forces: Chinese recovery against global recession, cheaper valuations against deteriorating earnings, rate-cut hopes against economic weakness. The consensus was that Australia would outperform. But the consensus also acknowledged that the path would be volatile, and that the downside risks—recession, geopolitical shock, a weaker China—remained very much on the table.
Notable Quotes
I expect the ASX to outperform the US market as resources and industrial sectors outperform growth sectors. China's return to GDP growth will be the key driver of the consumption for commodities as well as strength for the Australian dollar.— Jun Bei Liu, portfolio manager, Tribeca Capital
A recession could threaten this though.— Shane Oliver, chief economist, AMP
The Hearth Conversation Another angle on the story
Why would the Australian market suddenly outperform after lagging so badly in 2023?
The valuations had gotten cheaper while the US, especially tech stocks, had gotten expensive. And there's a structural bet here on China and commodities—if China's economy picks up, Australia benefits directly through resource demand.
But if central banks start cutting rates, doesn't that usually mean trouble ahead?
Exactly. That's the contradiction everyone's wrestling with. Markets are celebrating the prospect of rate cuts, but historically that's a sign the economy is weakening. So the rally might be premature.
What's the single biggest thing that could break this forecast?
A recession. If the global economy slides into recession, all bets are off. The Australian market would fall with everything else, and the dollar would weaken as investors flee to safety.
You mentioned China's growth slowing from 5.4 percent to 4.6 percent. Is that still considered a recovery?
It's still growth, but it's a deceleration. The property sector is still weak, external demand is soft. If it slows further than expected, commodity prices fall, and Australia loses its tailwind.
What about the Australian dollar reaching 75 cents? That seems optimistic.
It depends on how much the US dollar weakens as the Fed cuts rates. If the Fed moves aggressively and the RBA holds firm, the gap widens and the Australian dollar strengthens. But if the US economy stays resilient, the dollar could stay supported.
So we're really betting on a Goldilocks scenario—China recovers, rates fall, but not into recession?
That's the bull case, yes. The bear case is that rate cuts signal an economy in trouble, and we get a hard landing instead. The market's pricing in the Goldilocks version right now.