The share market has snapped a six month losing streak to post near record monthly gains in October. The All Ordinaries Index gained 7.1% to close the month at 4,360.50 points.
Global share markets were all significant stronger in October with the Dow Jones Index gaining 9.5%, the FTSE gaining 8.1%, the Nikkei 225 gaining 3.3% and the Hang Seng gaining 12.9%.
Last month I wrote about the cause of decline in share prices over the first half of 2011, and how we had ‘priced-in’ a significant financial crisis in Europe.
The market turnaround in October proves how fickle the share market is currently. The sharp reversal followed European leaders agreeing to a bailout package for debt laden Greece.
In essence, the deal involves a recapitalisation of European banks, a voluntary 50% write-down on sovereign Greek bonds, plus an increase in the firepower of the euro-zone bailout fund to about US$1.4 trillion. Additionally, Greece will aim to reduce its debt to 120% of gross domestic product by 2020.
Despite the big gains in October, some investors are hesitant about whether the rally is sustainable. Questions still remain regarding how Europe will implement its bold plans and whether they will be enough to resolve the Continent's debt crisis.
I retain my long held view that share prices over the long-term will be driven by company profits (rather than offshore macro events). With the current market environment fundamental analysis has taken a back-seat, making it very hard to predict short-term market movements with any degree of confidence.
Nevertheless, despite the sustainability concerns mentioned above, I still see considerable upside potential in Australian shares for the long-term patient investor.
The Australian dollar also increased sharply during the month on the back of positive news from Europe. The Australian dollar is currently buying US105.37 cents.
In welcome news for homeowners, the RBA board meets today with many economists tipping a 0.25% per annum reduction to the RBA cash rate (currently 4.75% per annum). News of the RBA rate decision will come to hand at 230PM (EDST).
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.