Banks in prime position
Published in The Advertiser, January 2008 by Dale Gillham
The extreme volatility that began in August of last year on the Australian market, as a result of the subprime 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 pull-back.
For example, QBE more than halved following the September 11 attacks in 2001 but has since risen over 500 per cent.
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
December 14 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 past four weeks, breaking below 6200 points, which was the top end of the target for the fall that I predicted in my report on November 30.
I believe we will see a short-term low soon 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 four-year low, which if correct means our market will be bullish for the next one to two years, although this will only be confirmed once the all-time high is broken.
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