The Market Wrap 15-6-12

By Jason Fittler

"...at present I would not be surprised to see our market fall below 4000 points, but it will be brief. This will provide the perfect opportunity for the astute investor to buy quality Australian companies at a discount and hold for the short-term yield and long-term growth."

The above chart looks back at the market from the lows of March 2009 (the bottom of the GFC) up until the close of business on Friday the 15/06/2012.

What is clear is the market has spent more time above the 4400 level then below. It is also clear that there is strong support for the market at 4000 points. Keep this in mind when reading my following comments.

Greece is at the polls again this week, investors are watching with anticipation to see the outcome of the election.

Why? Because the media say it is a big deal. Yes Greece is in financial difficulty, they will stay in the EU or they will leave either way they are still in financial difficulty I would not want to be invested in Greece or Europe in general.

The short version is that companies in this region will be facing a tough time over the coming 10 years, some will go broke and investors who already have exposure to this region will suffer loss.

Is another GFC coming?

Given the irrational actions of investors at present I would not be surprised to see our market fall below 4000 points, but it will be brief. This will provide the perfect opportunity for the astute investor to buy quality Australian companies at a discount and hold for the short-term yield and long-term growth.

I do not expect to see the market collapse and fall another 50% like it did back in 2008 – 2009.

Look at it this way, if you have any of the major banks in your portfolio and have held them for at least the last 2 years why would you sell them now. You could have sold them when the market was up around 4800, why didn’t you?

The simple answer is that back then everything was looking better so you were positive on the market and your investments. Since then the media has feed you stories of doom and gloom so now you have a negative view on the market.

Telstra is another good example; twelve months ago everyone was so negative on the company, since then there has not been any major announcement which was not expected twelve months ago. Today everyone is positive on the company and the price is rising.

We are also seen the small cap companies starting to move, this is a clear indication that the professional investors are buying. Interest rates are falling which means that self funded retired people need to look elsewhere for a better return and will start investing in the market again.

Interest rates cuts only benefit around 30% of the population the other 70% need to now look for a better return than a term deposit.

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