Share Trading - Free Financial Advice for Australians
The Turbulent Markets
What a month! January and February will go down as one of the most turbulent
months in the history of the world's stock exchanges.
As at today it's still volatile but despite all the hyperbole we are all still
here, financially speaking. BHP went down to $31 in January, only to rebound to
$39 at the end of the month, and as I write BHP is still up and down between $39
and $36. And with the Rio bid now behind us, so the market says, we should be
back to some normality although I do expect a lot more volatility over the
coming months.
The market rose to a peak in November and then had 8 days of continuous falls in January. These falls were exacerbated by panic as sellers began to sell sell sell. Some people even sold with the thought of getting back in later just to end the pain. One of the most absurd things to do now is sell because shares have fallen.
High quality businesses and high quality portfolios don't just suddenly lose value. Those top 100 companies in Australia are still all doing well. We have all heard it before but the idea is to sell at the height of the euphoria and buy when there's blood in the streets.
Unfortunately it's hard to do, and share investing you must remember is for the long term; there is always going to be volatility over time. Portfolios should be re-weighted periodically but not when the market is going through such volatile times as we are at the moment.
Without dwelling on the sub prime crisis, inflation and possible recession in the US let's look forward to 2008 now and consider where to from here.
Where to for the rest of 2008?
I have spent the last 4 weeks or so listening to and discussing with market experts and economists the likely direction of the market over the next 12 months. As I said last year the view remains divided over the next 12 months but the big questions are the following:
- Will the USA go into recession? Some people think it already is.
- If so, will the rest of the world follow?
- Will it affect Asia and some of the emerging markets in Asia as well as the BRIC economies?
- What are the opportunities for 2008?
Let's take the recession question first. There are some that say the US is already in recession. The definition of a recession in the USA is somewhat different to ours and to that in Europe. In Australia if we have two quarters of negative growth we are said to be in a recession. In the US it means two quarters of below previous GDP growth.
So a recession could simply be a slowdown, and we could definitely have a slowdown in the US in 2008, and this is really the reason why the definition of a recession over there is subjective. I do estimate that for at least 18 months there will be more pain to go through, for the US housing market as well as the US stock market.
How will this US slowdown affect the rest of the world? Put simply, it will.
The better question is by how much? With the collapse of the investment bank Bear Sterns it has been a financials melt down. A 90 year old company worth $170 a share a year ago selling for $2 dollars a share. The US will always have an influence on the rest of the world but it is reducing. The US economy is three times the size of China and India combined. It is a huge powerhouse and will exert influence on the world markets. In saying that, we in Australian rely more on Asia than the US. We export 12% to the US and 21% to China. The effects on China and the other BRIC economies are yet to be determined but these countries are on a growth cycle never previously seen. They will continue to grow for the foreseeable future. Most economists will argue that there certainly won't be a melt down in Asia but rather a slowdown, a slowdown from around 12% to say 9% GDP which is still huge growth. The only caveat will be inflation and all the BRIC countries' governments are very cognisant of the inflation impact on growing economies.
This leads us to the opportunities for 2008. As Asia will be the powerhouse for the foreseeable future it makes sense you should be diversified in international shares in Asia and emerging markets but not Japan or Europe for 2008 and definitely not the US. The U.S. has long term structural problems which could last for years.
As far as Australia goes I expect the share market to regain growth in the latter half of the year after some volatility. We are in a prolonged resources boom in Australia that looks like going ahead for at least five more years and beyond. Diversified resource stocks and resource managed funds offer the best opportunities for 2008.
As to the correct weight, many of us are 60% / 40% Asia / Australia from last year and this remains valid with a further re-weighting to Asia of 70% / 30% or for the more aggressive 75% / 25% to the Asia and BRIC economies. Global property has not performed as expected in 2007 but is definitely holding up in the current environment.
As at today it's still volatile but despite all the hyperbole we are all still
here, financially speaking. BHP went down to $31 in January, only to rebound to
$39 at the end of the month, and as I write BHP is still up and down between $39
and $36. And with the Rio bid now behind us, so the market says, we should be
back to some normality although I do expect a lot more volatility over the
coming months.The market rose to a peak in November and then had 8 days of continuous falls in January. These falls were exacerbated by panic as sellers began to sell sell sell. Some people even sold with the thought of getting back in later just to end the pain. One of the most absurd things to do now is sell because shares have fallen.
High quality businesses and high quality portfolios don't just suddenly lose value. Those top 100 companies in Australia are still all doing well. We have all heard it before but the idea is to sell at the height of the euphoria and buy when there's blood in the streets.
Unfortunately it's hard to do, and share investing you must remember is for the long term; there is always going to be volatility over time. Portfolios should be re-weighted periodically but not when the market is going through such volatile times as we are at the moment.
Without dwelling on the sub prime crisis, inflation and possible recession in the US let's look forward to 2008 now and consider where to from here.
Where to for the rest of 2008?
I have spent the last 4 weeks or so listening to and discussing with market experts and economists the likely direction of the market over the next 12 months. As I said last year the view remains divided over the next 12 months but the big questions are the following:
- Will the USA go into recession? Some people think it already is.
- If so, will the rest of the world follow?
- Will it affect Asia and some of the emerging markets in Asia as well as the BRIC economies?
- What are the opportunities for 2008?
Let's take the recession question first. There are some that say the US is already in recession. The definition of a recession in the USA is somewhat different to ours and to that in Europe. In Australia if we have two quarters of negative growth we are said to be in a recession. In the US it means two quarters of below previous GDP growth.
So a recession could simply be a slowdown, and we could definitely have a slowdown in the US in 2008, and this is really the reason why the definition of a recession over there is subjective. I do estimate that for at least 18 months there will be more pain to go through, for the US housing market as well as the US stock market.
How will this US slowdown affect the rest of the world? Put simply, it will.
The better question is by how much? With the collapse of the investment bank Bear Sterns it has been a financials melt down. A 90 year old company worth $170 a share a year ago selling for $2 dollars a share. The US will always have an influence on the rest of the world but it is reducing. The US economy is three times the size of China and India combined. It is a huge powerhouse and will exert influence on the world markets. In saying that, we in Australian rely more on Asia than the US. We export 12% to the US and 21% to China. The effects on China and the other BRIC economies are yet to be determined but these countries are on a growth cycle never previously seen. They will continue to grow for the foreseeable future. Most economists will argue that there certainly won't be a melt down in Asia but rather a slowdown, a slowdown from around 12% to say 9% GDP which is still huge growth. The only caveat will be inflation and all the BRIC countries' governments are very cognisant of the inflation impact on growing economies.
This leads us to the opportunities for 2008. As Asia will be the powerhouse for the foreseeable future it makes sense you should be diversified in international shares in Asia and emerging markets but not Japan or Europe for 2008 and definitely not the US. The U.S. has long term structural problems which could last for years.
As far as Australia goes I expect the share market to regain growth in the latter half of the year after some volatility. We are in a prolonged resources boom in Australia that looks like going ahead for at least five more years and beyond. Diversified resource stocks and resource managed funds offer the best opportunities for 2008.
As to the correct weight, many of us are 60% / 40% Asia / Australia from last year and this remains valid with a further re-weighting to Asia of 70% / 30% or for the more aggressive 75% / 25% to the Asia and BRIC economies. Global property has not performed as expected in 2007 but is definitely holding up in the current environment.
©2025 All rights reserved | Email:
info@financialadviceaustralia.com.au
Home | Superannuation Funds | Property Investment | Income Tax | Income Protection Insurance | Fund Managers
Margin Lending | Stock Trading | Stock Market Crash | Tips | Quotes | Property Boom | Baby Boomers | Mortgage Trust
Reduce Tax | Buying Shares | How To Invest | Investment Scams | End Of Financial Year | Building Wealth
Oulook 2006 | Investment Types | Property Trust | Market Investment
Home | Superannuation Funds | Property Investment | Income Tax | Income Protection Insurance | Fund Managers
Margin Lending | Stock Trading | Stock Market Crash | Tips | Quotes | Property Boom | Baby Boomers | Mortgage Trust
Reduce Tax | Buying Shares | How To Invest | Investment Scams | End Of Financial Year | Building Wealth
Oulook 2006 | Investment Types | Property Trust | Market Investment