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Australian market’s bull run expected to continue

SYDNEY - The Australian share market will continue to soar this financial year as a China-driven resources boom that fuelled 24 percent growth in the past 12 months shows no signs of abating, analysts say.

The benchmark S&P/ASX 200 rose 1,201.0 points to 6,274.9 in the financial year to June 30, and experts predict it will hit 7,200 in the next 12 months.

They say a domestic economic backdrop of solid growth and benign inflation has encouraged investors, with activity from cashed-up pension funds and mergers helping bolster the positive sentiment caused by the resources boom.

AMP Capital Investors head of investment strategy Shane Oliver said there had been increased volatility in recent months following the February sell-off on the Shanghai bourse but he expected the market to post another surge soon.

‘While the Australian share market has been stuck in a range between about 6,200 and 6,400 since early May it is likely to soon break decisively through the 6,400 level, and past experience suggests that when it does it will be followed by a quick run-up to around the 6,600 level,’ he said.

Oliver said he expected the index to climb to 7,200 by June 2008, a rate of growth only slightly lower than that seen in the financial year just completed.

Commsec chief equities analyst Craig James predicted a lower outcome of 7,000 points after what he described as a ‘stellar’ 12 months that followed three years of strong growth in the Australian market.

‘On average, share market returns have grown by 25 percent per annum over the past four years, well above the long-term trend of around 13-15 percent,’ he said.

‘With the Australian and global economies in good shape and valuations still favourable, we expect the share market’s bull run to continue over 2007/08.

‘But returns are expected to be more ‘normal’ at around 15 percent, a step down from the experience of the past four years.’

Resources were the standout sector, with mining giant Rio Tinto becoming the first Australian-listed blue chip stock to break through the 100 dollar a share (85 US) barrier in June, rising about 20 percent during the year.

BHP Billiton’s Australian-listed shares hit a record high of 35.60 dollars on June 22 as investors took the view that the company would benefit from further consolidation in the global resources sector.

It recorded a barnstorming performance in the second half of the year, rising 38 percent.

Nomura Australia investment strategist Eric Betts said the strength of the resources sector was reflected in rising prices for metals such as nickel and hefty oil prices, as well as merger and acquisition activity.

‘I guess the resources sector was back in vogue,’ Betts said.

Mergers and acquisitions also helped the market, with even a failed private equity bid for Qantas resulting in huge turnover as investors looked for a profitable outcome.

Australia’s second-largest retailer, Coles Group Ltd, is on the auction block, with Perth-based conglomerate Wesfarmers in the box seat.

Rumours of bids for brewing giant Fosters and Rio Tinto briefly sparked buying frenzies before falling away.

Austock senior adviser Michael Heffernan said the stage was set for another strong year on the Australian market.

‘I think we are going to be sailing beautifully for the next 12 months,’ he said. ‘The market is underpinned by a very solid economy and the medium-term outlook has got to be good.’