As the Australian sharemarket passes its sixth consecutive month of declines, those who hoped for a better year in shares are wondering if the Australian sharemarket will, in fact, be better than what we experienced in 2008.
The All Ordinaries Index closed February at 3,296.9 points, down nearly 10% from the start of the year. The string of poor economic data, job layoffs and hold-ups with implementing government rescue packages around the world has forced many economists to downgrade their expectations for the Australian sharemarket in 2009.
Craig James, chief equities economist with Commsec has downgraded his rather optimistic outlook of the Australian sharemarket made in early January. Mr James’ January prediction for the Australian sharemarket of 4,700 points at year-end (an increase of over 25%) has been revised to a position where on 2 March 2009 Mr James noted “I take back everything I said. In fact, we think it is likely things will get worse before they get better”.
It should be noted that Mr James was not the most optimistic economist at the start of 2009. Economists representing Merrill Lynch and UBS were predicting Australian sharemarket increases in 2009 in excess of 40% and 35% respectively. Only time will tell if these bold predictions are indeed accurate.
Notwithstanding that there has been a significant decline in asset values over the past 18 months, our view is that there is still risk to the downside in the short-term. We expect continued extreme volatility in the market as “value” bullish buyers contend with the bearish economic data likely over the coming months.
For things to improve on a sustainable basis we will need an indication that the worse of the economic downturn is behind us. Indeed, we will need to see that there is light at the end of the tunnel not the lights of an oncoming train...
For our managed direct equities portfolios we maintain our bias to defensive shares with a strong competitive position, stable earnings and proven business models. For the long-term investor who has weathered the storm of the financial crisis, there is a compelling case to reweight your portfolio to defensive equities over the short to medium term. Those thinking about entering the market or switching from cash to equities may want to consider a “dollar cost averaging” investment approach to reduce impact of high volatility.
February also saw the Federal Government make a series of policy announcements aimed at stimulating the Australian economy. For more information visit the article on our website titled “2009 Government Stimulus Package” or click here.
The fourth quarter Australian GDP data was released on 4 March. For more information visit the article on our website titled “GDP Fourth Quarter Data 2008” or click here.
If you have any questions or concerns please don’t hesitate to contact us on 1300 856 338.
Ryan Love PimJohn Van Gestel
Director, Apex Partners
Financial Planner
Authorised Representative # 277801
Director, Apex Partners
Financial Planner
Authorised Representative # 321504