ANXIETIES which have plagued domestic equities this year are set to continue in the next, with forecasters sharply divided on whether the bears or bulls will win.
Analysts and investors agree Europe's debt crisis, the speed of recovery in the US and China's ability to shrug off the economic slowdown will remain the main drivers of Australian share prices in 2012.
But, after stocks climbed to within sight of the 5000 mark this year only to slump to a two-year low of just above 3900, a range of about 20 per cent, predicting what will happen has become like shooting in the dark.
Dealers surveyed this time last year forecast shares would rise up to 17 per cent this year. Yesterday, the benchmark S&P/ASX200 index ended its final trading day of the year at 4056.6, down 14.5 points on the day and 14.5 per cent lower for 2011.
The broader All Ordinaries closed 12.1 off at 4111.0, 15.2 per cent lower for the year, equivalent to the market losing about $230 billion.
The chief investment officer of Platypus's Australian Equities Fund, Donald Williams, said the market would revisit its 2011 highs in the next six to nine months due to further rate cuts from the Reserve Bank of Australia and high commodity prices.
"There are a lot of reasons to believe the Australian stock market will do a lot better over the next 12 months," he said.
"Since we got the first [rate] cut in November, we've had the sense the opportunity set has changed."
The RBA cut the cash rate to 4.25 per cent this month, the first time it has made two successive downgrades since 2009.
Financial markets are betting on a further rate cut in February and some expect the cash rate could even drop to 3 per cent by mid-next year, below the level seen in the midst of the 2008-09 financial crisis.
But, with Europe teetering on the brink of deep recession and indications China's economy may also be slowing, Macquarie equity strategist Neale Goldston-Morris said he did not expect the ASX200 to break above 4600 next year.
Adele Ferguson Page 9
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