Outlook remain volatile
Published in Courier Mail, January 2008
by Louise Brannelly
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.
Although any celebration would seem premature.
Australian shares are still down 7.6 per cent for the year and 14 percent 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 Marco Faraone.
'We will see more volatility. We're advising clients to stick to the blue chips - those companies with established businesses."
Macquarie Equities adviser Helen Spencer cautioned long term investors not to get unnerved by recent market gyrations.
"Historically the market will trend up," she said.
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 earlier overnight on Tuesday easing the fears that the US, the world's largest economy, is in or sliding towards recession.
Global markets also took heart with news that 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 over reaction.
"Investors still need to get more confidence that the sub-prime 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 2008.
"It is clear that investors over reacted to fears of a US recession; with sentiment driving investment decisions rather (than) fundamentals," Mr James said.
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 82¢ to $13.15.
It shares are up 14 per cent over the week making it one of the S&P/ASX 200's best performers.
But plenty of stocks have received a drubbing.
Sub-prime fears have stripped billions of dollars off the value of Allco Finance Group over the past year and its shares continued to haemorrhage this week, falling another 29 per cent.
Shares in Queensland travel group Flight Centre rose 87¢ to $23.25 but are down almost 20 per cent over the week.
