Will the Australian Market Trade Above 6,200 Points?
By Dale Gillham |
When looking to grow an investment portfolio, I often find that investors blindly follow the herd looking for the best bang for their buck. I also find that investors tend to focus on gaining income rather than capital growth from their investments, but smart investing is about the total return you receive.
Where should you invest your money?
Many are asking in the current COVID-19 environment where they should be investing, and, in my opinion, the answer is simple. As the renowned Warren Buffett famously states, buy in doom and sell in boom. Traditionally investors turn to property as their preferred investment but when looking at the recent research, depending on the area where you want to invest, property prices are forecast to be flat or down.
Furthermore, in this low interest rate environment and uncertain recessionary market, property prices may be subdued for quite some time. So, is this the right time to be buying property or should you stay away?
To understand where and when you should be investing, I always recommend investors consider the investment clock or what is otherwise known as the economic clock. I say this because smart investors diversify their investments across several asset classes including property and shares among other investments.
The idea is to look for opportunities in asset classes that are underperforming and likely to move with the next phase of the economic clock. In short, you are looking to buy just before the asset begins to rise not after it has already risen. Sadly, too many investors are indecisive when it comes to investing and jump from one investment to another hoping to get into the next best thing after it has already risen strongly.
Right now, the investment clock has ticked well past property as an asset class and, therefore, now is the time to start looking at gaining exposure in this area. In regards to the share market, many sectors have been underperforming for quite some time that may present some great buying opportunities for the astute investor.
Remember, understanding when the right time to enter an asset is very important, as you want to gain a solid return from both income and capital gains. That said, what is even more critical is knowing the right time to exit. In my experience, investors tend to hang onto poor performing asset classes or hang on way to long in the hope they will perform better. As Buffett states, sell in boom and buy in doom, which means buy when assets are priced low and sell when they are high because this way you will avoid the ugly rollercoaster ride that the majority of investors endure.
What were the best and worst performing sectors last week?
In contrast to last week, the All Ordinaries Index has been slightly bullish and, as such, nearly all sectors are in the green. Last week’s worst sector, Energy, lead the way up 4.9 per cent followed by Materials up 4.42 per cent as BHP and S32 rose strongly together with a number of other miners, while Information Technology sector was up 2.29 per cent. The worst performing sectors included Financials, which was just in the red down 0.88 per cent followed by Industrials and Consumer Staples both of which were up around 0.5 per cent.
Looking at the ASX top 100 stocks, the best performer last week included Incitec Pivot up over 15 per cent followed by Ampol up over 10 per cent, while the Star Entertainment Group and Santos were both up over 8 per cent. The worst performers included Resmed, which ended the week down over 11 per cent followed by Scentre Group and NAB, which were both down 5.88 per cent and 3.96 per cent respectively. AMP and Bendigo Adelaide Bank were also down over 3 per cent last week.
What's next for the Australian share market?
Last week felt like deja vu given that over the past few weeks the All Ordinaries Index has tended to trade higher earlier in the week only to fall away on Friday. Looking back to 31 July, the market fell nearly 2 per cent eroding all of the gain from earlier that week. The market also rose strongly early last week only to fall on Friday. However, unlike the week prior, the fall was just over 0.5 per cent on the day, which resulted in the All Ordinaries Index closing up 1.43 per cent for the week.
Over the past two months, the market has continued to tread cautiously and is really going nowhere, although I am confident it will pick a direction soon. There is an old saying that the amateurs open the market and the professionals close it. Therefore, given that the market has traded down over the previous two Fridays, it suggests that the big end of town are not overly bullish.
That said, even though the market fell on Friday of last week, the close was still relatively strong, which could indicate the market will trade up this week. Until the market closes strongly above 6,200 points, the probability of it falling below 5,600 points still remains, which is why I am still urging investors to exercise caution right now.
For now good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.