Banks in prime position to benefit
Published in The Advertiser, January 2008
by Dale Gillham
THE extreme volatility that began
in August of last year on the Australian
market, as a result of the subprime
mortgage meltdown, has continued.
While this has created a lot of
angst for investors, it is important to
remember that the best time to buy
good shares is following a market
crash or a severe market pull-back.
For example, QBE more than
halved following the September 11
attacks in 2001 but has since risen
over 500 per cent.
In the current market, I believe the banks will present a great opportunity to buy once the volatility settles. Five of the seven banks in the top 20 shares had negative returns in 2007 as follows: ANZ -2.66%, MQG -3.46%, NAB -6.46%, SGB -4.27% and SUN -16.86%. Only CBA and WBC delivered positive returns of 19.44% and 15.18% respectively. Given that RAMS is now out of the picture and the supply of money is tight around the world, I believe the banks are in a prime position to benefit.
So what can we expect in the market?
In my last report for 2007 I indicated
that I needed to see the
market rise during the week following
December 14 to change my
opinion that it would be bullish
through to the end of January.
However, as we know the market
has continued to trade down over
the past four weeks, breaking below
6200 points, which was the top end
of the target for the fall that I
predicted in my report on November
30.
I believe we will see a short-term
low soon and once this is confirmed
the market will be bullish.
There is a high probability that
the low in August of last year was
also the four-year low, which if
correct means our market will be
bullish for the next one to two years,
although this will only be confirmed
once the all-time high is broken.
