Shareswatch Australia

There is nothing particularly exciting about the Australian stock market these days. The malaise which has essentially paralysed the government seems to have spread to the business sector which in turn is slowly sucking the lifeblood out of the share market. It’s unlikely that things will improve soon and so investors should prepare themselves for the market to move lower over the next few months.

Almost daily the mainstream finance & business media churn out headlines regarding the stock market that would imply that stocks are either surging to new highs or falling to new lows.  The truth however is much more boring and so today I will try and have an emotion-free look at what the S&P/ASX 200 Index has been doing over the last few years & months.

An extended stock market market downturn such as the one we are experiencing now provides long term investors with an opportunity to gauge how well companies have been able to deal with harsh economic conditions.  So today let’s have a look at four consumer spending related Australian listed companies and see how they have fared over the last five years.

So far this year the Australian stock market had managed to edge slowly upwards and the All Ordinaries Index appears poised to settle above 4400 during the next week or so. Although the risks of a major Eurozone economic implosion appear to be fading, the signs are that the economy in China continues to slow and it appears the U.S. economy is still struggling. The situation in China in particular is likely to have a major impact on where the Australian stock market heads next over the following few months.

It may appear to some investors that the Australian stock market has started 2012 in the same volatile manner as we have become use to over the last few years, however trading so far this year has been fairly calm.  An optimist might believe that this is an indication that the markets are finally settling down though I fear we are simply enjoying a period of calm before we enter a stormy phase again.

Recently the markets appear to have settled somewhat and the Australian stock market has steadily been heading higher so far in 2012. Could we be seeing the early signs of another bull market taking hold or are we about to see another sharp correction take the ASX All Ordinaries back down towards 4000 and perhaps lower?

Recently the markets appear to have settled somewhat and the Australian stock market has steadily been heading higher so far in 2012. Could we be seeing the early signs of another bull market taking hold or are we about to see another sharp correction take the ASX All Ordinaries back down towards 4000 and perhaps lower?

The ASX All Ordinaries Index and S&P/ASX 200 Index finished much lower than I expected in 2011, so this makes me somewhat reluctant to go on record and make an Australian stock market forecast for 2012. However the process of looking at the various economic data and trying to guess where the market will end is a useful one, so foolishly I will outline once again my Australian stock market forecast for the year ahead.

The interest rate cut yesterday by the Reserve Bank of Australia suggests that finally the RBA understands that the Chinese economy will not keep expanding at a rapid rate while its major trading partners are struggling. But even if the Chinese economy slows more than most economists expect this is unlikely to send the global economy back into a GFC-like slump.

The continuing debt crisis in Europe is a reminder to investors that we are still in the midst of the Global Financial Crisis (GFC) which first gripped the markets back in 2008.  The G20′s first cunning plan to spend their way out of trouble didn’t do much to fix the root causes of the GFC and so they are gathered once again for another talkfest which at best, might give the markets a kick upwards for a few days.

Over the last six months stock markets globally have become more volatile as Europe and the U.S. struggle to revive their economies.  To make things more complicated many advanced economies have racked up so much debt during the ‘good times’ that they now don’t have the capacity to spend their way out of trouble.  There will be no quick fixes and the situation is worrying enough to even rattle the commodities bulls.

Prices for hard commodities such as copper, iron ore & coal have risen strongly over the past decade and are now trading well above their long term historical averages.  This in turn drove the ASX All Ordinaries Index to a bull market high in 2007 and has helped put some support under the market ever since.  But is it realistic to expect high commodities prices will keep propping up the Australian stock market?

In the midst of all this market madness it might be useful for investors to sit back and look at what various sectors of the Australian stock market have being doing over the last ten years to see if we can spot any emerging trends.  We all know for example that the resources sector has been generally kind to investors over the last few years but will it continue to be a strong performer in the years ahead?

Often it is useful to step away from looking at the daily movements of the stock market and review what has happened over the last decade.  This won’t exactly tell investors which stocks will do well during the next 10 years, but it does show which trends have moved the market to where it is now.

The Australian stock market is still a long way below the last market high reached in 2007 and so I can’t help wondering when we might see the ASX All Ordinaries reach a new market high.  Perhaps it will just be a few years time before the market recovers lost ground, or maybe it’s going to be a long wait before share market investors see stocks once again post gains year after year.

Last year when I dared to suggest that the Australian economy was unbalanced and that 2011-2012 could be a period of economic contraction the mainstream financial reporters were churning out “miracle” economy stories. Back then they were obsessed with telling their readers how the mining boom would shower riches across the Great Southern Land, but today many of them have started to sound a lot more cautious.