How low can it go

Published in the Daily Telegraph, July 2008

by Erica Thompson and Rhys Hanes

Surviving the second half of the year could be rough for investors, with fears the Australian stockmarket has yet to hit the bottom.

The benchmark S&P/ASX200 Index slipped under 5000 points for the first time in two years recently and the experts say the outlook isn't encouraging with both psychological and economic hazards ahead.

AMP Capital Investors chief economist Shane Oliver says the next few months, historically, tend to be when "financial accidents happen".

"I certainly wouldn't rule out a large one-day slide between now and October," he says. "Last year we had
the subprime crisis in August and given the continuous state of the global economy, the risk remains fairly high."

Centric Wealth head of equity research Paul Zwi says despite signs of emerging value, the market is not likely to bounce back any time soon.

Even with Australia's strong economic fundamentals, he says investment markets are being "swamped by a global loss of confidence".

Wise-owl.com senior equities analyst Simon Guzowski says the local market is likely to sink further than 5000 points, but won't drown.

"Most stocks are already showing value and dividend yields are very attractive, which should see us find a base not far from current levels," he says.

"If we can hold above 4750 you can still argue that we are in a long-term uptrend. But it may be some time before we see a record high again."

He says the market is likely to track sideways for the rest of the year, with a December closing price of about 5300 points.

BT Financial chief economist Chris Caton is predicting a December close of 5750 points for the ASX200, with eventual optimism about a recovery in the US economy the key to a turnaround.

Wealth Within chief analyst Dale Gillham says in the coming weeks the All Ordinaries Index could drop as low as 4748 - a level not seen since early 2006.

"There is still a possibility that the market could fall away between now and September. 

If it does then I would expect the market to find support between 4800 and 5000 points, with sectors likely to be hit hardest being financials, consumer discretionary, industrials and property trusts."

Mr Gillham adds: "There is an old saying that the darkest hour is just before dawn. 

It is getting pretty dark ... (and) while I would urge investors to remain patient, I believe it is time to get ready to take advantage of the next bullish move."