Shares to break 5000

Published in The Daily Telegraph, March 2008

Bears will continue to stalk nervy investors next week as a slip under the 5000-point barrier looks increasingly likely, analysts say.

Despite yesterday’s solid 1.4 percent gains – which pushed right through to the close – market experts believe investor pain will continue to rule the month of March.

Most analysts who spoke with The Daily Telegraph yesterday say they are almost convinced the key All Ordinaries index will fall below 5000 points in the coming weeks.

In an intensely volatile five days of trading, the All Ords only lost 80.4 points, even after dipping close to 5000 midweek.

Yesterday the All Ordinaries closed 72.8 points up at 5288.5, while the S&P / ASX200 lifted 71.0 points to 5206.9.

Fat Prophets chief equities analysts Greg Canavan said while bear market rallies would occur, the downward trend would continue over the next few months.

“The RBA is still talking tough on inflation and unlike in the US there appears to be very little prospect of our central bank lowering interest rates to prop up the stock market,” he said.

“When asset markets are backed by debt and interest rates are rising there are not many places to hide.”

A leading UBS analyst said the likelihood of markets dipping below 5000 was “a 50-50 scenario”, while Wealth Within chief analyst Dale Gillham was more bearish.

Mr Gillham said despite further weakness, the market would soon find a support level to springboard from.

“Over the next one to two months we will see the market fall to (about) 4800 points, after which I believe the next bull run will begin,” he said.

Tuesday’s US Federal Reserve Bank meeting may bring confidence next week.

Finance markets are expecting a 0.75 per cent cut in the Fed’s funds target to 2.25 per cent, exactly half the going rate in September last year.

That cut is sure to be a growth impetus for local markets which continue to be joined at the hip to the US CommSec chief analyst Craig James believed.

Mr James believes the tough times will end soon and 5000 will not be breached.

“We take the view that the market is fundamentally cheap at these levels. We are still not masters of our own destiny, whatever happens in the US seems to follow through to here,” he said.

“Valuations on a forward price-earnings ratio are the cheapest in 12 years, so we believe there is very good value in the market. People buying now will be rewarded in 12 to 18 months. We can never say never in this environment, but if we got down to those sorts of levels (4800), the market would be so ridiculously cheap you may as well sell the house and buy up a bucketload of shares.”

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