Details Cookies
Important margin product information

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money.

Cookie policy

This website uses cookies to offer you a better browsing experience by enabling, optimising and analysing site operations, as well as to provide personalised ad content and allow you to connect to social media. By choosing “Accept all” you consent to the use of cookies and the related processing of personal data. Select “Manage consent” to manage your consent preferences. You can change your preferences or retract your consent at any time via the cookie policy page. Please view our cookie policy here and our privacy policy here

The ASX200 finally took out its previous record high set in November 2007 The ASX200 finally took out its previous record high set in November 2007 The ASX200 finally took out its previous record high set in November 2007

The ASX200 finally took out its previous record high set in November 2007

Summary:  The ASX 200 finally reached a fresh record high. What drove the record breaking run? What’s next for the ASX200? - A look ahead to reporting season

The ASX200 this week finally took out its previous record high set in November 2007, its been a long time in the making but it must be remembered that the Total Return Index (which includes dividends) gained all the ground it lost through the GFC by October 2013. This is important because Aussie companies typically have larger dividend payout ratios relative to international companies, and whilst the price index has taken a long time to return to pre-GFC levels capital has been returned to investors in the form of dividends.

There are a few factors in play, propelling the ASX to fresh record highs, counter intuitively they don’t include a healthy economy and robust corporate earnings outlook. But the ASX200 has defied this dynamic rallying 21% year to date and beneath the surface of the market’s strong performance a "valuation paradox" bubbles. On the one hand, growth, inflation and earnings are all slowing, meanwhile economic growth in China (Australia’s largest trading partner and the global credit engine) is ailing. At an index level, expectations for FY19 earnings growth is lacklustre, FY19 EPS estimates for some sectors of the market have fallen from +9% to just +1%, consistent with the exhausted growth outlook. 

The main driver has been central bank policy and a dovish symphony from central banks around the globe. Interest rates in Australia will be lowered again and are set to stay low for an extended period as we heard last week from Governor Lowe, who echoed notoriously dovish central bankers ACB President Mario Draghi and BOJ Governor Kuroda. In this low rate environment, cash is set to yield very little and this tempts savers to climb up the risk spectrum into higher yielding assets.

Lower interest rates also feed into share price valuations. Whereby a lower discount rate increases the present value of future cash flows, justifying higher valuations as interest rates fall, even when economic and earnings growth may be weak thus fueling multiple expansion. Despite sluggish economic growth softening profit outlooks. And that’s why we have seen blue sky growth stocks, like Appen, Afterpay and Wisetech bid up significantly and outperform the broader market.

As the RBA have cut the official cash rate to a record low of 1.0% this year, and Australian Government bond yields have hit record lows, the ASX200 has been propelled higher. The removal of policy uncertainty post the federal election, soaring iron ore prices and a positive lead from Wall Street with US shares hitting fresh all-time highs has also contributed to the rally, but the primary driver is central bank action and the return of easy monetary policy across the globe fuelling a collapse in bond yields.

So, for now, the multiple expansion story is winning out. But, generally collapsing yields and a race to the bottom from global central banks is not a good news story. And the deteriorating growth and lacklustre corporate earnings outlook is largely ignored at current equity prices with the anticipation of central bank support already formidable given the market is pricing a terminal rate of 0.49% by July 2020.  

So that leaves little else to propel further multiple expansion without a material uplift in corporate earnings growth. The bar has been lowered sufficiently when it comes to the upcoming August earnings season such that companies should meet expectations. The worry? Currently FY20 EPS estimates are forecasting an uplift from FY19 earnings, so a V-shaped recovery in the outlook for corporate profits, which is optimistic against the current economic backdrop. This leaves a very small margin for error if this in fact becomes a more L shaped recovery, based on subdued outlooks from companies reporting throughout August given economic growth in Australia remains below trend, a manufacturing slowdown drags on global economy, trade war lingers, and Chinese growth slows – meaning that growth is likely to remain tepid at best and there is a myriad of factors weighing on revenue growth. If this sentiment is reflected in company outlooks then this could lead FY20 estimates to be lowered, whilst valuations are already stretched and priced for perfect execution of an earnings uplift and cycle upswing.

What lies beyond taking out this fresh record high is less certain, with the ASX200 having risen 21% year to date and valuations stretched relative to historical averages, the market could be ripe for a retracement.

PE expansion over 1 standard deviation from the average 12-month forward PE is historically unsustainable:


The concern now would be that the next large move for the ASX200 is not a bullish one, given the deterioration in corporate earnings, whilst already a formidable amount of central bank easing is priced. FY19 EPS estimates for some sectors of the market have fallen from +9% to just 1%, consistent with the exhausted growth outlook. You don’t want to be the marginal buyer when valuations are high, and no material growth upswing is visible on the horizon. But once valuations have corrected, the value proposition becomes more attractive as yields are likely to remain low for an extended period, and the dip would likely be bought.

ASX 200 dividend yield premium vs. bond yields at decade highs:


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.