Investment bank Credit Suisse is forecasting a flat 12 months for Australian stocks as the resources sector and the big four banks weigh on the market.
Credit Suisse has downgraded its 12-month target for the S&P/ASX 200 from 64,00 points to 5,850 points, which is just two per cent above its current levels.
The downgrade comes after the benchmark index came close to touching the 6,000-point barrier several times between February and April, but has since retreated.
The bank's Australian chief investment strategist David McDonald said the local market had been one of the most disappointing performers globally in the past couple of months.
He attributed the change in the Credit Suisse's view to a weaker-than-expected earnings outlook for the big banks and resources companies, combined with a relatively strong Australian dollar.
He said the resources sector had performed even more poorly than Credit Suisse had forecast earlier this year, while recent profit results suggested earnings growth would be tough to come by for the big four banks.
"We have continued to see negative revisions to earnings of commodity producers," he said.
"On top of this, the recent bank earnings season disappointed market expectations."
Given the size of the two sectors in Australia, he said that made it hard for the ASX to pull ahead significantly.
"That's 50 per cent of the market that has been a drag," he said.
He also said despite providing a boost for retailers, the recent federal budget, which included a $5.5 billion small business package, had no notable impact on the market.
Meanwhile, while the Australian dollar was much lower than a year ago, it was still stronger than many would have hoped.
That meant companies with strong international earnings and exporters weren't benefiting as much as had been expected.
Credit Suisse still expects the dollar to move lower once the US Federal Reserve starts lifting interest rates, which is likely to happen later this year.
Mr McDonald said a fall in the local currency could prompt an upgrade to its outlook.
"I guess we would like to see that happen before we change our view," he said.
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