Investment markets bounced back from consecutive monthly losses, with solid gains recorded across all major share markets. For the month of October, the All Ordinaries Index gained 4.5% to close at 5,288.7 points.
Global shares were solid in October with the US Dow Jones Index gaining 8.5% the London FTSE gaining 4.9%, the Japan Nikkei 225 Index gaining 8.2% and the Hong Kong Hang Seng Index gaining 8.6% in September.
The positive result came on the back of news that the European Central Bank will provide more policy easing measures to boost the struggling European economy. Furthermore, since the US Federal Reserve baulked at tightening rates in September, China, Taiwan, India and Norway have eased rates.
This indicates a global shift towards central banks around the world looking to “add stimulus” rather than control inflation fears. While history suggests that central bank stimulus is a win for share markets, investors need to be cautious backing market rallies on stimulus alone.
What is really needed to provide investors with conviction is solid earnings growth to justify the historically high company valuations (on an earnings multiple measure). Given the clouded global economic outlook (as discussed in last months’ newsletter) this will not be easy. Consequently, market volatility will remain in the near term.
In addition to sharemarket volatility, there are mounting signs that Australia’s housing market may be moving through the peak of the cycle. To access a special RP Data report on this topic, click here.
In domestic interest rate news, the Reserve Bank kept the official Cash Rate on hold at 2.00% per annum in September. The Australian Dollar strengthened in the month, with 1 Australian Dollar currently buying 71.43 US cents.
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This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.