Share Market Wrap 11th Jan 08
The extreme volatility that began in August of last year on the Australian market, as a result of the sub-prime 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 pullback. For example, QBE more than halved following the September 11 attacks in 2001 but has since risen over 500%. 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 14 December 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 last 4 weeks breaking below 6200 points, which was the top end of the target for the fall that I predicted in my report on 30 November. I believe we will see a short-term low in the very near future 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 4 year low, which if correct means our market will be bullish for the next 1 to 2 years, although this will only be confirmed once the all time high is broken. Dale GillhamChief Analyst Wealth Withins
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