Shareswatch Australia

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 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.

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?

Often finance writers comment that the investment world has changed since the Global Financial Crisis sent stock markets around the world tumbling in 2008 and 2009.  Maybe that is true or maybe it’s just that investors stopped paying attention to the risks and focused too much on the possible profits? In any case, it’s time to think about what might happen in the next 5 years or so and contemplate making some changes to my Australian stock market investment strategy.

I have a message for those people who fled to the hills over the last few years fearing that global trade was going to collapse, paper money would be worthless and that gold would be the only thing worth owning for years to come and that message is:  “the global economy is recovering, please come back and join the rest of us”.

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.

Well 2009 is almost over and although stock market investors did it tough in the first quarter, overall the ASX All Ordinaries and S&P/ASX 200 posted healthy gains of around 30%. This means stocks & shares were in fact a good place to have your money over the last 12 months.

When it is hard to make sense of what is going on with the global economy I feel it is often best to try and remove the noise created by endless stock market reports, economic surveys, financial forecasts etc. and try and focus on facts not fiction. It also helps to put aside people’s opinions (including our own), relax and calmly assess what the data is really telling us, as opposed to trying to use this data to predict the future.