Share Market Wrap 27th April 07

It is anticipated that at the end of this financial year superannuation funds are set to deliver around a 13% return to investors, which will be the fourth year running that funds have delivered this type of return. While investors appear happy, the question to ask is are they really getting a good deal?

While funds do tend to benchmark themselves against various indices such as the S&P/ASX 200 or 300, if we just look at the All Ordinaries which comprises the top 500 stocks on the Australian market, it returned (excluding dividends) 17.79% in financial year 2004, 19.82% in 2005, and 19.01% in 2006, and so far this year it has returned 18.77%. If we include the average 4% dividend yield, then growth in each of the past 4 years has averaged over 20%. Given this, I would argue that there is a strong case for investors to set up their own self managed super funds. After all if an investor achieved only 10% capital growth and 4% income from dividends plus franking credits, it seems obvious that they would be beating the major super funds performance.

So what is happening on the market?

Predicting what will happen in the share market on a weekly basis is a tough job because at times the market behaves erratically, which has certainly been the case over the last month. In the past week, this erratic behaviour has really only seen the market trade sideways, with the peak on 18 April yet to be broken, which suggests we may have seen the short term peak I have been expecting.

In previous reports I indicated there was a high probability that the market would peak sometime up to and including April 18 and it is now 5 trading days since then and the market is finally falling away, which I expect will continue for at least another 1 to 3 weeks. Whether this peak is the actually yearly high I have been predicting is yet to be confirmed. If it is, then I expect the market will fall to around 5800 points. As I have indicated previously, I don’t believe medium to long term investors need to be worried about the current fall as I expect the market will return to being bullish in the not too distant future.

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