The Australian share market continued its directionless trend in August, giving back some of its July gains.
The All Ordinaries Index fell 1.5% during the month to close at 4,438.8 points. Global markets were also generally poor across the board in August.
The Dow Jones Index closed down 4.3%, the FTSE down 0.6%, the Nikkei 225 down 7.5% and the Hang Seng down 2.3% for the month.
Last year, the All Ordinaries Index closed at 4,476.3 points on 31 August. It is therefore apparent that the Australian share market has moved sideways (with a fall of less than 1%) for a full twelve month trading period.
Such a sideways market usually keeps the debate between “bears” and “bulls” at high levels. This time is no exception.
On one hand we have the likes of Clifford Bennett, economist at Herston Economics, who ends his messages to readers nowadays with “very bullish”.
Bennett is convinced the world is about to awake to the fact that a new bull market has started, one that will last at least five years and up to 15 under an even more positive scenario. This is why Bennett talks about a “Grand Bull Market” that will see the overall share market valuation double over the next few years.
On the other hand, we have a whole army of well-respected market commentators, including the likes of Harry Dent in the US who continue to warn investors that what we are witnessing is the beginning of another thirties (Japan) style ice age.
Most commentators are somewhere in the middle, with an underlying bullish tone, though not necessarily with regards to the next two months.
Many technical analysts are still projecting a new low for this year sometime in October. With September traditionally being a poor month for equities this view may have merit.
As always, investment selection should be dictated by timeframe. Provided you have a long-term investment horizon, the recent pull-back in share prices may present an excellent investment opportunity for an astute investor.
We note that fundamental share market valuations remain strong, with an average market price-earnings ratio at roughly 12x (versus a long-term average of 15x). Company earnings through August were also reasonably positive across the board.
In political news, August 21 saw the Federal Election. Unfortunately, nearly 2 weeks on, we are still not sure what political party will govern the nation and who will be the Prime Minister. With such a tight election, any major legislation change will be difficult to get through parliament.
Our guess (and I repeat guess) is that the Coalition will be given the first opportunity to form government and that Tony Abbott will become Prime Minister. Hopefully we will know more in the coming days, if not weeks.
The Reserve Bank of Australia kept rates on hold in August. The RBA will meet next Tuesday to assess interest rates, although most economists expect rates to remain on hold.
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.