Shareswatch Australia

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.

As we approach the end of another year we should not be surprised by the economic turmoil in Europe, the ailing U.S. economy or the rumblings of a major slowdown in the Chinese property market. The signs that all was not well with the global economy have been raised on this humble site going back more than a year. Simply put, borrowing vast sums of money and splashing it around did not fix the global economic imbalances highlighted by the market meltdown in 2008.

For around a year or so I have gradually become more cautious about the outlook for the Chinese economy despite the assurances from mining company executives, the RBA and Wayne Swan amongst others that all is well. Without doubt the rapid development of the major cities in China has been nothing short of spectacular but surely we must ask ourselves: is this rapid growth sustainable over the long term?

We are almost through a third of 2011 and the mood across global markets appears to be decidedly downbeat.  The bullish voices of late 2010 have now faded and even the Reserve Bank of Australia and Federal Treasurer are sounding cautious. But don’t be fooled by the talk that recent events have caused the global economy to face headwinds because the reality is that 2011 was always going to be a tough year.

First a few personal facts. My involvement with China goes back to the early sixties as a diplomat in Hongkong where I was learning Mandarin. For a while I served as China desk officer in Canberra’s foreign affairs ministry. Then during Cultural Revolution days I finally got to China, by organizing an Australian pingpong team (over Canberra’s opposition).

Back in the 2008/2009 when home prices in parts of Europe and the United States were tumbling there were plenty of “experts” saying Australian house prices would also come crashing down. But alas the residential property market remained fairly robust during the global financial crisis and the experts who predicted a crash in property prices were wrong.

One year has now passed since the failure of Lehman Brothers sent global financial markets plunging and only recently has it felt that the global economy may finally be entering a period of recovery. But will conditions be better or worse in 12 months? Will house prices be higher or lower and where will Australian stocks be in September 2010?

Now that the world seems to have avoided falling into an economic heap, various pundits have switched their attention to life after the global financial crisis. Of course if you spend most of your life saying the world economy is doomed then there has to be a crisis after this current crisis and one scenario being talked about is where many developed nations will enter a period of deflation.

The debate about where Australian home prices are heading appears to be getting more intense these days. Commentators who have been predicting home prices will crash have seized on falls seen so far as proof they are right, whereas those who believe prices will not crash pounce on the same data and says it supports their view. Confusing isn’t it?

In Part 1 of the Australian home prices debate I looked at some of the factors that could drive home prices down in Australia. Now in Part 2, I shall outline the other side of the debate and consider the arguments that support the view that the Australian residential property market will generally withstand the fallout from the global financial crisis and not follow prices down in a similar way to the U.S. and U.K.

One of the most discussed economic topics at the moment in Australia is regarding whether real estate prices are about to plunge across the nation or if Australian residential property will generally be spared from the savage price falls seen in the U.S. and the U.K.  Rather than take sides in this debate, I will merely outline some of the arguments being tossed around in newspapers, online forums and blogs etc. and see how well they hold up to scrutiny.

Those evil bankers, how could they do this to us? Because of their greed they have destroyed the global economy, caused global warming and killed Elvis. Their extreme capitalistic neo-liberal Reaganomics ways have doomed us all, while we the general public were going about our daily lives helping the poor, spending wisely and spreading goodwill throughout the world.