(Bloomberg) -- One of this year’s best-performing stock markets has just hit a fresh record.
Australia’s S&P/ASX 200 Index reached its highest level, having added about $240 billion in value this year as investors cheered a dovish central bank, a surprise federal election victory by the incumbent center-right government and skyrocketing iron ore prices.
The gauge rose as much as 0.7% to 6,875.5 in early trading on Tuesday, pushing past its all-time high from November 2007.
Anticipation that the Federal Reserve will cut interest rates this week, renewed U.S.-China trade talks and “reasonable” U.S. corporate earnings results added to momentum that’s been building in the benchmark over the last month, said Eleanor Creagh, a Sydney-based strategist at Saxo Capital Markets.
“The ASX has really looked determined to breach and set fresh record highs,” she said.
Up and Over
The decision by central banks around the world to pull back on interest rate hikes sparked a global equities rally amid bets that accommodative policies could bolster earnings. The Reserve Bank of Australia came out with back-to-back interest rate reductions in June and July, the first changes in policy since September 2016.
The coalition’s shock election win in May triggered a relief rally with the finance sector rising 12% as investors rejoiced that the opposition Labor Party wouldn’t be able to curtail tax breaks for property and stock-market investors. Health-care stocks advanced as the outcome thwarted plans to cap the amount they can raise premiums.
Skyrocketing iron ore prices also propelled the index higher. Benchmark prices for the steelmaking ingredient hit their highest in over five years, boosting miners including Rio Tinto (LON:RIO) Group, BHP Group Ltd. and Fortescue Metals Group Ltd. But the good times might be over for the material -- analysts expect prices to ease after this year’s enormous gains.
Best and Worst
Communications services has been the best-performing sector this year. Technology was the next best, with the WAAAX stocks surging as investors seek exposure to the global rally that has sent U.S. tech equities soaring since 2017, followed by the miner-heavy materials.
The energy sector, which has advanced 14% this year, was the worst performer on the ASX 200, followed by utilities.
Magellan Financial Group Ltd. has been the top individual performer on the index, more than doubling in value amid a sustained surge in inflows. Produce company Costa Group Holdings Ltd. was the worst performer after cutting its guidance twice so far this year.
Where to Now?
Analysts disagree on where Aussie stocks will go after this year’s jump, with Citigroup Inc (NYSE:C). and Morgan Stanley (NYSE:MS) Wealth Management cheering the surge, and Goldman Sachs Group Inc (NYSE:GS). downgrading the market to underweight.
Investors are piling into equities, and paying higher prices for them, at a time when cash is set to yield very little and interest rates are likely to remain low for quite some time, Creagh said.
“It’s not something that’s going to be sustainable as a longer-term picture,” she said. “Deteriorating growth and the lackluster corporate earnings outlook is ignored at current equity prices.”
High valuations going into the August earnings season have the potential to stymie the rally, said Karl Goody, a private wealth adviser at Shaw and Partners Ltd. in Sydney.
“I’m really struggling with earnings season at the moment because I don’t think we’re getting the news which is needed to support the current multiples,” he said. “But, in saying that, every day the market just goes higher.”
(Updates with comments throughout.)
