In its latest assessment of the ASX, released on Monday, Morgan Stanley downgraded the stock market operator from “equal-weight” to “underweight”, and reduced its price target from $58 to $55.05.
At market close on Tuesday, the ASX was trading at $60.65, and was down 5.12 per cent over the day.
“Our underlying earnings fall 1–2 per cent for FY25 and FY26, reflecting lower activity volumes, mainly in capital markets,” the research note said.
At the same time, Morgan Stanley acknowledged that the ASX’s earnings are beginning to stabilise.
However, its forecast of a 3 per cent compound annual growth rate (CAGR) in earnings per share (EPS) from FY2023–24 to FY26–27, coupled with a valuation of 25 times FY25–26’s price-earnings ratio (P/E), means that ASX shares “do not present a strong case compared to the rest of our coverage”.
Namely, ASX’s capital market counterparts, Computershare and Macquarie Group, are on track for mid to high single digit or better EPS growth, according to the firm.
“Our entire general insurer coverage (five stocks) is on track for double-digit earnings growth in FY25E whilst trading on sub-20x P/Es. Our wealth and asset manager coverage is in a broadly similar position on earnings growth versus trading multiples,” it added.
Expounding on this, Morgan Stanley said that 1H25E revenue growth will be a “bright spot” at around 7 per cent but expects this to fade to some 3.5 per cent in 2H25E and FY26E.
Moreover, rate futures volumes were up 20 per cent in 1H25, according to the firm, but the 30 per cent 1Q25 growth rate slowed towards 10 per cent in 2Q25, with expectations that momentum will slow further to “low single-digit growth” in 2H25E.
“We think the capital market recovery in Australia will lag the US and so we don’t think that listings and equity-related revenues will grow fast enough to make up for lower rate futures growth,” Morgan Stanley said.
Despite the downgrade, it noted that new product launches from the ASX show some promise, and that the company has “modest” potential to surprise on the upside on revenues.
Namely, in July 2024, ASX launched new environmental futures contracts, and later in August, launched Wallumbilla gas futures, the latter of which was developed with a working group of more than 25 organisations.
“ASX is also set to develop an Australian carbon exchange, plus regulators are exploring central clearing of Australian bond and repo markets, which could also be facilitated by the ASX,” Morgan Stanley said.
It added that other upside risks to ASX’s share price would also include “substantially” better cost management, alongside an extended period of volatility and growth in rate futures.
