Share Market Wrap 2nd Nov 07
Last week the ATO announced that it was relaxing the rules for SMSF in regards to leveraging, and whilst the industry is still grasping with exactly what these new rules will mean for Australians, on the surface it looks to be a positive move. However, if the new rules mean that investors will be able to borrow to purchase property in their SMSF, this may well have a significant impact on both the share and property market. Currently SMSF’s invest heavily in cash and shares therefore if money is shifted into the property market it could cause a major decline in the share market. On the flip side, increased demand for property will force prices even higher making it harder for first home buyers to break into the market. Whilst leveraging can magnify returns, the opposite is also true and while the economy is booming there is usually little to worry about. However, economists are predicting a worldwide recession in the next decade which may cause problems for many baby boomers particularly if they are over leveraged in the property and share markets because they may well struggle to cash up for retirement.
So what can we expect in the market?
Over the last month I have been indicating that the market needed to fall for one to two weeks into a short term low, which it did falling to 6559.6 points on Monday 22 October. Since that time the market has been very volatile and displaying signs of indecision with a number of stocks swinging strongly in both directions. This made it difficult to confirm the low, however, late last week the market moved up to make a new all time high of 6873 points on Thursday, signalling that the market will most likely be bullish until around Christmas. That said the DOW fell heavily Thursday night and in a reaction to that the All Ordinaries fell heavily on Friday. Right now I do not believe our market will fall below the low achieved on 22 October and that the fall on Friday is nothing to worry about. While I indicated that the market would display signs of volatility and unpredictability up until 1 Nov, I believe it should settle over the next few days. Once this occurs we should see some great opportunities in the market.
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