Expert predicts recovery

Published in Money Management September 2008

It appears not everybody is spooked by the current volatility in the global and Australian share markets, with Dale Gillham, professional trader and chief analyst at Wealth Within, a prime example.

“I’ve had my clients in cash pretty much all year, so I’m pretty calm,” Gillham said.

A technical rather than a fundamental analyst, Gillham said he’s been telling his clients to move to cash for “quite a long time”.

“My original target for 18 months ago was 4,800 points [on the S&P/ASX 200] for the low, and then 4,300 after that,” Gillham said.

“This morning we’ve hit 4,569, so it’s still possible in the rest of this week [that] we’ll get probably another dip down to that 4,300 points, then find the bottom and start to move up again. And that’s when I’ll start to buy.” Gillham’s outlook for the coming 12 months is what some may call optimistic.

“I would expect that once we’ve hit the bottom we will rise somewhere in the vicinity of 20-30 per cent in the next 12 months, probably sooner,” he said.

“I would expect we would rise up to probably 5,500-5,800 by May next year.”

In regards to the blocking of the US bailout plan by Congress, Gillham said allowing certain financial institutions to succumb to the pressure of the credit crunch would “washout” the mess very quickly, but most likely push “the US into a massive recession, which has world ramifications”.

But the possibility of this outcome hasn’t dampened his outlook for the Australian share market.

“What people are forgetting is that since Keating floated the dollar, our market is becoming more and more un-linked from the US market and economy, and quite regularly we’ve run countercyclical to the US in our share market.”

Gillham cited the example of the countercyclical movements of the US and Australian share markets between the years 2000 and 2003, when “ours was rising while theirs was falling quite heavily”.

He said while our market is affected by “major moves” from the US, now “much more of our trade is with Asia and other areas, not the US”.

On a recent trip to China Gillham discovered that while Asia traditionally looked to the US for regulatory and educational guidance, it is now looking more to Australia.

“They’re seeing what a disaster the US has been and that Australia hasn’t been, and they’re thinking ‘we should be looking to Australia for our lead’.”

The Australian share market has shown resilience today, regaining most of its early trading losses, while in the US the Dow lost almost 7 per cent in yesterday's trading.

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