The Australian share market ended four months of consecutive gains, falling 2.0% in the month of November, closing at 5,314.30 points. The pullback was expected, with the overall market up by approximately 14% for the 2013 calendar year-to-date.
Global shares were mixed in November with the Dow Jones Index gaining 3.5%, the FTSE falling 1.2%, the Hang Seng gaining 2.9% and the Nikkei 225 continuing its volatile trend - gaining 9.3% for the month.
There is no doubt that share market investors have been well rewarded over the last 12 to 18 months. An environment of strong government economic stimulus, low interest rates and an increasing investor appetite for risk has fuelled share price growth around the globe.
Share-prices are now trading at relatively high valuations by any traditional valuation measure. Australian banks, in particular, are now among the most expensive in the world. Indeed, Australian banks forward price-to-earnings ratio is around 14x times earnings, which is equivalent to its cycle peak in 1999, 2001, 2007 and 2012.
While dividend yields for Australian banks is around are around their 20-year average of 5.5%, which remains attractive with the cash rate at 2.5%, investors needs to be very guarded about thinking these companies as having riskless earnings.
In the current environment, investors need to be cautious about chasing rising share prices. Investors should stick to a well-diversified portfolio of investments that will reduce the downside risks associated with companies failing to deliver on earnings expectations in 2014.
In interest rate and currency news, the RBA kept the cash rate on hold in November at 2.50% per annum and the Australian dollar weakened by 3.6% to 91.16 US cents to 1 Australian dollar.
For more information please contact Ryan Love on 1300 856 338 or e-mail ryan.love@apexpartners.com.au.
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.