The Market Wrap Friday 16th October 2009

4800 and beyond.

Last week the market pushed through 4800 and just touched 4900, the US also moved back above 10,000. The question is… Can they maintain this level?  There are a couple of issues to look at here.

First, the concern is that the market has run ahead of the fundamentals, in fact this is not the case.  Market prices are currently sitting slightly below where they should be for the current earnings and in line with forecast earnings.  What this tells me is that the market has regained its faith in the earnings forecasts which the market is putting out. As such we can expect to see the market return back to a fundamental base.

Second, Australia has picked up on the back of the China story, in the short term our future will depend on China’s stimulus package. I am comfortable with this as I fully expect China to continue to spend.

Third, our banks and large Blue Chip companies have led the way in re-capitalising themselves, putting them in a good position moving forward. The rest of the world has not quite followed suit yet, as such we can still expect a lag before the world is back to normal.

At present we are in a good position, I think that the market will hold around these levels for some time. Any pull back is an opportunity to get those last cash holdings into the market.