Share Market Wrap 27th July 07

There is a new trend in the Australian investment arena with the introduction of Listed Managed Investments (LMI) or Exchange Traded Funds (ETF) in recent years. Put simply, these are managed funds that are traded on the Australian stock exchange; therefore it is like buying a share in BHP or any other listed share on the ASX. The trend has resulted from the enormous success of ETF in the

U.S. where funds generally try to mirror an index such as the S&P 500. The implication is that anyone buying shares in the fund should achieve the same returns as the index. I don’t believe the same strategy would apply to the Australian market given that the All Ordinaries Index is ruled by the top 20 shares on our market. Therefore buying shares in an ETF that mirrors the All Ordinaries is not a really good investment in my opinion. You would do better to simply buy the top 10 shares on the Australian market. That said, LMI’ also invest in areas such as property and infrastructure, which may be worth investigating if this suits the risk profile of your portfolio.

So what’s happening on the market? Last week I stated that the market was unfolding in a rare sideways pattern that generally spells the end of a bull run. I also indicated that if I was correct in my research, the market would fall over the next week, which looks to be the case given that over the last two days (25 and 26 July) the market has fallen 2.4%. I believe the market will continue to fall by at least another 1% to 2% on Friday (27 July) as it reacts to the

US market falling heavily last night. The falls in recent days does not necessarily constitute an end to the bull market, therefore now is not the time to panic but rather to be conservative and to watch your open positions for any triggers to sell.

I believe the market will rise slightly mid to late next week as it rebounds before it falls again. If the market is turning bearish, I expect it will fall to below 6000 points and possibly fall as low as 5900 points in the next few weeks. Following this I believe the market will rise and present some great buying opportunities.

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