Market Wrap 4-4-12

By Jason Fittler

It has been a slow raise for the market to move above 4300 points but this week it managed to get and stay there.

This was helped along by the US markets which have performed well on the back of lower then expected unemployment, interest rates staying on hold and the increase in the sale of second hand homes and retail sales holding steady which all point to a recovery getting under way.

It is not yet time to get bullish on this market as we are not currently trading in line with the DOW Jones. This is mainly due to a number of reasons;

  1. Demand is dropping in China for iron ore and coal
  2. Carbon and MRRT are concerns for foregin investors
  3. Unstable government in Australia
  4. Loss of work place efficiencies in Australia

As you can see in the below chart the DOW Jones has outperformed our market over the past 12 months.  I expect that our market will be holding around below fair value of 4700 until at least the elections next year. 

I maintain my view that Australia still has some tough time ahead. And things will get worse for the average Australian in the up coming budget where we are now being asked to pay for the over spending stimulas that the government made in the GFC. 

Business will continue to do it tough but large Blue Chip compnies will continue to cut costs mainly through improving work place efficiencies (expect a lot more strike action) and cuttings staff numbers.

This is a positive for the investor in these companies as the dividend levels should be maintained and these companies will cut the fat and be ready for strong growth which will come eventually.

I countinue to buy blue chip companies for the dividend yield, my model portfolio returned 11.5% gross return over the last quarter.

For more information on any of the above please contact us on 07 4771 4577. 

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