Share Market Wrap 22nd Feb 08

While for many years the banks have been considered good defensive stocks, the recent volatility resulting from the sub-prime crisis has changed this view. Investor returns have fallen substantially as the big four banks have continued to fall away, with NAB and ANZ down 36 percent in around three months, followed closely by CBA and WBC. Despite current prices representing a significant discount on a value basis, the market is still nervous as to whether the worst is over. While some investors are beginning to view banks as an attractive investment given that the dividend yield increases as prices fall, now is not the time to invest in these companies as I believe the banks will continue to be weak in the short term.

So what can we expect in the market? Last week I indicated that I expected the market to fall away during the early part of the week before moving up again, although there was still a possibility it would fall away. As we know the volatility has remained high this week with the market continuing to move sideways. While the market has continued to unfold in an unusual pattern, I expect we will see some direction quite soon. My expectation is that the market will trade down in the shorter term although I don’t expect it to fall below the low of 5222 in January. That said my longer term view is that the market will be bullish over the next one to two years, therefore when the market volatility does ease there will be some great opportunities. Given this, I encourage all investors to be patient right now.

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