Australian shares should have a bumper 2016 and lift around 15 per cent, according to research from Credit Suisse.
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And stock-pickers should turn their eyes to Macquarie, Nine, AGL, Aristocrat, Lend Lease and carsales.com.au, the research said, while stocks to be wary of include Woolworths, Brambles, Crown, Santos, Medibank and Healthscope.
The investment bank is predicting the market, currently trading at 5240, will reach 6000 by December 2016.
"Australian equity investors are now pricing in a considerable period of decline in dividend per share," CS analysts Hasan Tevfik and Damien Boey said.
"This is too bearish in our view. Even during a period of subdued growth, we expect dividend per share to expand modestly and stocks to re-rate. We forecast the ASX200 index to be 6000 by December 2016."
Australian companies were set to enter a new era – which the paper termed "lost decades" – of moderate growth.
Credit Suisse said that companies would increasingly be relying on cost cuts, capital expenditure reductions and mergers and acquisitions to generate shareholder returns.
Australian shares were also vulnerable to a sharp contraction in Chinese investment and an acceleration in global inflation.
"Australian equities remain vulnerable to shocks as they endure their lost decade."
However, Credit Suisse was relatively optimistic on prospects for the US, predicting growth of 2.7 per cent in 2016 up from 2.5 per cent in 2015 and interest rate rises.
The research note was also relatively upbeat about Chinese economic growth, tipping GDP growth of 6.8 per cent in 2016, up from 6.5 per cent in 2015.
"Chinese growth remains on a downward trend as the economy continues to transition away from investment-led activity to consumption."
"Saying this, we believe there could be some stabilisation in the near term as infrastructure spending supports final demand."
Although the Chinese government could ease monetary policy through further interest rate cuts and reductions in the Reserve Requirement Ratio, "the banking system has little appetite to lend and pass on this easing".
Indeed, the paper listed a contraction in Chinese investment as one of the two main risks to its global outlook.
"Chinese investment is now bigger than US goods consumption and a potential fall here would cause a very big shock to the global economy."
The second potential risk, the paper said, comes from faster US inflation.
"Surprisingly strong inflation will probably lead investors to price in a faster pace of Fed tightening and considerably higher global bond yields."
The paper listed global inflation as "perhaps the biggest risk" for Australian equities.
High dividend-yielding markets like Australia look attractive when there is little inflation, but will undoubtedly struggle if inflation accelerates.
The Australian economy, meanwhile, was "growing at a sub-trend pace ... we expect the economy to continue its sluggish performance." In addition, Credit Suisse forecast further rate cuts.
Companies tipped to do well in 2016
1) Macquarie Group – "has a very good track record of acquiring."
2) Nine Entertainment – consolidation expected in the media sector should see Nine as "a likely beneficiary".
3) AGL Energy – should benefit from rising electricity prices.
4) carsales.com.au – expected to benefit from the consolidation of recent acquisitions.
5) Aristocrat – "where our outlook is for double-digit earnings-per-share growth supported by its expansion in the US.
6) Lend Lease – "where current valuations imply a very weak outlook, one that the company has not experienced before, in our view".