Market talks up new high

Published in the Gold Coast Bulletin, February 2007 by Shane Oliver

The Australian share market could hit 7000 points by the end of the year with no signs that the bull run is headed for a crash.

AMP Capital Investors chief economist Shane Oliver said the economic backdrop looked positive for more gains throughout the year, with 7000 points an achievable milestone.

My assumption is 6750 and that seems on track but I think the risks are well and truly on the upside,'' he said.

It is conceivable that we could get to 7000, if we see similar gains to last year . . . we'll be pushing towards the 7000 level.''

The strong resources boom, merger and acquisition activity and record-breaking profits helped the market surge to a record 6000 points on Thursday when the benchmark S&P/ASX200 index briefly hit an intraday high of 6000.

Mr Oliver hosed down concerns the market could be heading for a crash, noting the market fundamentals and drivers were strong.

``There is no sign of any impending crash on my calculations . . . the economic backdrop looks pretty good with pretty solid profit growth, relatively low interest rates, all at a time when the demand for shares is quite high,'' he said.

``That said, nothing ever occurs in a straight line, over the years we have had a few corrections so it wouldn't surprise me if we had a correction at some point along the way.

``I think we are on track for further gains this year.''

There has been a spike in private equity-led deals involving listed companies recently, which CommSec equities economist Martin Arnold said had added to the success of the share market.

``Underpinning resources is solid base metal prices and companies are posting good earnings, so that is obviously one of the major drivers,'' said Mr Arnold.

``To just add the cream on the top is private equity, which is scouting around for certain opportunities, so it is a bit of a trifecta effect.''

Mr Arnold was not as bullish on the market's overall gains for 2007, suggesting the current growth rates were not sustainable.

``The run-up has been fairly sharp in the year to date and it is certainly bigger than what we expected,'' he said.

``We'd only predicted around the 6300-odd mark by the end of the year, we thought the last three years of gains of around 20 per cent was possibly a little unsustainable, that it might moderate back to long term growth rates.

``At this stage we've been proven incorrect but it is hard to see it continuing at the current growth rate across the whole year, so it will probably slow down at some stage.''

Daiwa Securities analyst Mark Pervan said it was conceivable the market could hit 7000 points with the main drivers likely to be the financial and resources sectors.

``I think for that to happen you would have to see resilience out of the resources sector and another rally by the commodity markets, and that is certainly not out of the question,'' said Mr Pervan.

``On the balance I think this could be a pretty strong year for 2007.''

Wealth Within chief analyst Dale Gillham expects the market to find some resistance this month and fall away in a minor correction for the bull market.

``Following this, I believe the market will return to being bullish and rise up making new all-time highs in April or May, which I suspect will be the yearly high for 2007,'' he said.

`There is no sign of any impending crash on my calculations . . . the economic backdrop looks pretty good '

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