CommSec forecasting a 7 to 9 percent Australian share market fall in 2022

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Australia’s biggest online broker is expecting the share market to plunge in 2022 as rising interest rates squeeze the margins of big corporations.

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CommSec has forecast a seven to nine percent drop on the benchmark S&P/ASX200 index this year – despite predicting a modest five percent increase for 2022 as recently as January.

CommSec economists Craig James and Ryan Felsman said the stock market was likely to fall this year, even though profits were at record highs, because higher interest rates would squeeze margins.

The big banks and mining giants have suffered sharp losses during the last financial year, with Australia’s best performing company a year ago – lesser-known precious metals group Chalice Mining – losing half its value.

‘Companies are choosing to pass on higher costs to consumers, but they will find it harder to do so as interest rates rise further and spending growth slows,’ they said.

‘With pressured margins, earnings expectations are likely to adjust lower as growth slows.’

Australia's biggest online broker is expecting the share market to fall in 2022 as rising interest rates squeeze the margins of big corporations.  CommSec is forecasting a seven to nine percent drop this year (pictured are Australian Securities Exchange screens in Sydney)

Australia's biggest online broker is expecting the share market to fall in 2022 as rising interest rates squeeze the margins of big corporations.  CommSec is forecasting a seven to nine percent drop this year (pictured are Australian Securities Exchange screens in Sydney)

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Australia’s biggest online broker is expecting the share market to fall in 2022 as rising interest rates squeeze the margins of big corporations. CommSec is forecasting a seven to nine percent drop this year (pictured are Australian Securities Exchange screens in Sydney)

Sharp blue chip share losses in 2021-22

FORTESCUE METALS: Down 24.89 percent to $17.53

WESTPAC: Down 24.45 percent to $19.50

ANZ: Down 21.7 percent to $22.03

BHP: Down 15 percent to $41.25

COMMONWEALTH BANK: Down 9.5 percent to $90.38

The Commonwealth Bank, CommSec’s parent company, is expecting the Reserve Bank of Australia to raise the cash rate on July 5 by half a percentage point, taking it to 1.35 percent from 0.85 percent.

The CBA is expecting quarter of a percentage point rate rises in August, September and November that would take the RBA cash rate to 2.1 percent – ​​the highest since May 2015.

Inflation surged by 5.1 percent in the year to March – the fastest pace since 2001 – and RBA governor Philip Lowe is predicting it could hit 7 percent in 2022 for the first time since 1990.

‘As always, there is no certainty that central banks will get it right – that is, get inflation under control and back in designated target bands while avoiding pushing economies into recession,’ CommSec said.

‘Investors will clearly need to be alert in these volatile terms and pivot when necessary.’

Unlike the other big banks, CBA is expecting the RBA cash rate to peak in 2022 within the current monetary policy tightening cycle.

During the last financial year, the financial sector covering the major banks was a big loser, plunging by 11.3 percent.  Westpac shares plummeted by 24.4 percent, falling from $25.81 to $19.50 (pictured is a Westpac branch in Sydney)

During the last financial year, the financial sector covering the major banks was a big loser, plunging by 11.3 percent.  Westpac shares plummeted by 24.4 percent, falling from $25.81 to $19.50 (pictured is a Westpac branch in Sydney)

During the last financial year, the financial sector covering the major banks was a big loser, plunging by 11.3 percent. Westpac shares plummeted by 24.4 percent, falling from $25.81 to $19.50 (pictured is a Westpac branch in Sydney)

In that circumstance, CommSec is forecasting a five to eight percent gain in 2023.

During the 2021-22 financial year just gone, the S&P/ASX200 fell 10.2 percent.

That is a dramatic change from a 24 percent increase in 2020-21.

But CommSec is expecting the share market to climb to seven to nine percent in 2022-23.

During the last financial year, the financial sector covering the major banks was a big loser, plunging by 11.3 percent.

The Commonwealth Bank, Australia’s biggest home lender, saw its share price plunge by 9.5 percent from $99.87 to $90.38.

But the other big banks did even worse.

Westpac shares plummeted by 24.4 percent, falling from $25.81 to $19.50.

ANZ’s share price plummeted by 21.74 percent, dropping from $28.15 to $22.03.

The materials sector covering the mining giants was another big loser, falling by 8.6 percent.  Iron ore miner Fortescue Metals Group, led by billionaire Andrew Forrest, saw its share price dive by 24.9 per cent, falling from $23.34 to $17.53 (pictured is a Fortescue Metals dump truck at the Christmas Creek iron ore mine near Port Hedland in Western Australia's Pilbara )

The materials sector covering the mining giants was another big loser, falling by 8.6 percent.  Iron ore miner Fortescue Metals Group, led by billionaire Andrew Forrest, saw its share price dive by 24.9 per cent, falling from $23.34 to $17.53 (pictured is a Fortescue Metals dump truck at the Christmas Creek iron ore mine near Port Hedland in Western Australia's Pilbara )

The materials sector covering the mining giants was another big loser, falling by 8.6 percent. Iron ore miner Fortescue Metals Group, led by billionaire Andrew Forrest, saw its share price dive by 24.9 per cent, falling from $23.34 to $17.53 (pictured is a Fortescue Metals dump truck at the Christmas Creek iron ore mine near Port Hedland in Western Australia’s Pilbara )

The materials sector covering the mining giants was another big loser, falling by 8.6 percent.

BHP fell even more sharply, losing 15 percent as its value fell from $48.57 to $41.25.

Iron ore miner Fortescue Metals Group, led by billionaire Andrew Forrest, saw its share price dive by 24.9 percent, falling from $23.34 to $17.53.

Chalice Mining, Australia’s best performing company a year ago, saw its share price halved, plunging from $7.42 to $3.78.

In 2020-21, the share price of Chalice Mining, a precious metals company, soared from just 99.5 cents to $7.42 – a gain of 642.5 percent.

During the last financial year, the utilities sector surged by 29.3 percent, with Origin Energy soaring 27 percent from $4.51 to $5.73 (pictured is an Origin Energy power bill)

During the last financial year, the utilities sector surged by 29.3 percent, with Origin Energy soaring 27 percent from $4.51 to $5.73 (pictured is an Origin Energy power bill)

During the last financial year, the utilities sector surged by 29.3 percent, with Origin Energy soaring 27 percent from $4.51 to $5.73 (pictured is an Origin Energy power bill)

During the last financial year, the utilities sector surged by 29.3 percent, with Origin Energy soaring 27 percent from $4.51 to $5.73.

This occurred despite Australian Energy Market Operator data showing a 141 percent increase in the wholesale electricity price in the year to March.

With Australians allowed to travel overseas again, car accessories and bull bar maker ARB saw its share price plunge by 34.6 percent from $43.19 to $28.24.

In 2020-21, its share prices surged by 140.6 percent to $43.19 as those with spare cash bought accessories for their four-wheel drive.

The consumer staples sector fell 2.2 percent during the last financial year, but Woolworths dropped by 6.6 percent, from $38.13 to $35.60.

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