Great bounce-back
Published in The Courier Mail, January 2008
Australian shares have bounced back with a record-breaking three-day rally but the outlook remains volatile.
Since Tuesday’s $100 billion mauling bargain hunters have swarmed over the market, buoyed by decisive economic action in the US.
The benchmark S&P/ASX 200 rallied 280 points or 5 per cent to 5860.3 yesterday, capping a remarkable week where the market rebounded 13 per cent in three days.
It snapped a 12-day losing streak and propelled shares almost 2 per cent above the previous Friday’s close.
However any celebration would seem premature.
Australian shares are still down 7.6 per cent for the year and 14 per cent off their November 1 peak.
“We think the market has recovered quite well but we’re still cautious in the short term,” said Wilson HTM private client adviser Macro Faratone.
“We will see more volatility. We’re advising clients to stick to the blue chips.”
But Dale Gillham, chief analyst of share investment company Wealth Within, remains bearish.
“Given the speed with which the market fell over the past two weeks, it is possible that it will turn down again and possibly fall to below 4800 points.
“I highly recommend investors take a wait-and-see attitude over the coming week until the dust settles.”
This week’s rebound came after the Federal Reserve made an emergency 75 basis point interest rate cut on Tuesday, easing fears the US is in or sliding towards recession.
Global markets also took heart yesterday on news that the US Congress and the White House had reached swift agreement on the outlines of an economic stimulus package that would give 117 million US families a tax rebate.
CommSec chief equities economist Craig James said the massive share selldown earlier in the week was a huge overreaction.
“Investors still need to get more confidence that the subprime crisis in the US is over and that the US housing market is going to recover and we aren’t there yet,” he said.
He predicts the local bourse will be back over 6000 points by mid-year and may even reach 6700 points by the end of the year.
While all but a handful of Australia’s top 200 stocks gained ground yesterday, those with exposure to the US were among the biggest winners.
Shares in Gold Coast surfwear company Billabong, which makes almost half its sales from the US rose almost 7 per cent or 82c to $13.15. But plenty of stocks have received a drubbing.
Subprime fears have stripped billions of dollars off the value of Allco Finance Group over the past year.
Its shares continue to haemorrhage this week, falling another 29 per cent.
