The Australian Securities Exchange (ASX) has been delivering steady, if modest, long-term returns, posting around 10% gains year-to-date.
However, long-range financial market forecaster the Economy Forecast Agency (EFA) is predicting the Australian bourse to hit never-before-seen growth numbers over the coming years dwarfing the recent 9,000 points milestone.
The S&P/ASX 200 hitting new record highs (above 9,000 points) recently confirms overall bullish sentiment and prevailing strength in the Australian equity market. This milestone of surpassing 9,000 reflects sustained growth following gains of 7.8% and 9.7% over the previous two years.
The ASX closed up Friday 5 September, gaining 44.70 points or 0.51% to 8,871.20, however the index has lost 1.14% for the past five days and at market close last week was sitting 2.02% below its 52-week high.
The Economy Forecast Agency predicts the ASX will continue its strong performance and will hit 8,916 points in early October 2025 to peak at 9,720.
Longer term, the EFA forecasts the ASX to open January next year at 9,367 points and by the end of December 2026 it predicts the index topping 12,000 points – a whopping 34.4% gain for the year.
EFA’s predictions for 2027 are even bigger. It sees the S&P/ASX 200 ending on 13,195 points – gaining almost 48% that year.
The EFA is an independent firm specialising in long-range financial market forecasts. It uses models for long-term forecasting crude oil prices and precious metals prices, exchange rates, interbank interest rates, stock indices, and some other macroeconomic indicators.
Price earnings ratio
Currently, the S&P/ASX 200 is trading at a high price-to-earnings ratio (20.63×) – far exceeding its long-term average of 14.8×, according to World PE Ratio. Considering the average P/E interval was 14.79x to 19.15x over the past five years, the current P/E might be considered overvalued.
CommBank notes the long-term trend for the P/E ratio of the Australian market is about 15, “although it has bounced about a bit in recent years”.
A price earnings (P/E) ratio measures how expensive a company’s shares are. Dividing the share price (market value) of a company’s stock by its annual earnings per share derives a figure representing the amount of funds paying for each dollar of its earnings.
For example, if a company is trading at $25 per share and its earnings over the past 12 months were $1.15 per share, then the P/E ratio for the stock would be 25/1.15, which is 21.74.
Analysts from Macquarie and UBS see potential upside heading towards mid-2026, driven by expected interest rate cuts by the Reserve Bank of Australia, projected boosts to consumer spending, and broader fiscal stimulus.
Other market analysts are less bullish with some forecasting earnings declines of roughly 3% in 2025, marking three consecutive years of negative earnings growth, with just a modest rebound anticipated in 2026.
This dynamic could lead to a scenario in which stretched valuations may falter unless earnings improve significantly. However, the mining sector looks like it is embarking on a bull run, as reported by Mining.com.au, which outlines the views of renowned investor Rick Rule.
The S&P/ASX 200’s sector composition outlines Australia’s economic priorities.
About 30% of the index is in the financial sector, which is dominated by the ‘Big Four’ banks (Commonwealth Bank, Westpac, NAB, and ANZ).
Roughly 20% of the index are in the materials space and features a raft of mining juniors, as well as mining giants such as BHP (ASX:BHP) and Rio Tinto (ASX:RIO).
Healthcare companies form about 10% of the ASX, while consumer sectors roughly make up 15% combined between discretionary and staples, with energy, technology, utilities, and telecommunications comprising the remaining percentage.
Some of the stronger performers on the ASX so far in 2025 include Evolution Mining (ASX:EVN), which is generating returns of more than 120% in FY25. This performance is largely being driven by rocketing gold prices and record mine cash flow.
Also soaring more than 120% in FY25 is Technology One (ASX:TNE). The enterprise software solutions firm is benefiting from robust earnings, early achievement of its $500 million annual recurring revenue target, as well as broader revenue strength.
Codan (ASX:CDA) is up about 67% in FY25. Founded in 1959 and headquartered in South Australia, Codan is a global company that develops rugged and reliable electronics solutions for government, corporate, NGO, and consumer markets across the globe. Codan’s technologies include metal detection and communications.
Write to Adam Orlando at Mining.com.au
Images: Unsplash & World PE Ratio
