This week the Australian stock market slid into what I would call a bear market although some would argue that it has avoided such fate by a whisker. The reality is however that the ASX All Ordinaries did close below 4000 recently and that represents a drop of just over 20% from levels seen in April. If it looks and feels like a bear market, then for me it is a bear market.
Some weeks ago I had thought that the market was oversold and that we would see the All Ords rally past 4000 and edge slowly up towards 4800 again. But the ongoing debt crisis in Europe has knocked global markets around and the Australian stock market has not fared well.
ASX All Ordinaries Index 6 month candlestick chart
The candlestick chart above clearly indicates how the ASX All Ords has tracked steadily downwards over the last 6 months apart from holding on pretty well in July. We had a dip in August which I thought was a sign that stocks were oversold, but alas it wasn’t the case and recently the stock market dipped underneath that low.
Now the struggle will be for the ASX All Ords Index to hold above 4000 which I believe it will and despite the turmoil across the global markets, I still think the All Ords & ASX 200 will finish higher by the end of the year.
They will probably struggle to get near 4800 but we still have 3 months of trading until the end of the year and a lot can happen to the stock market in that time.
On a brighter note the Baltic Dry Index is now trading around it’s 20 year average so slowly the shipping sector might be working itself out which would be a positive development.
But never fear, the G-20 circus rolled into Washington D.C recently and true to form issued an almost meaningless communiqué which was nonetheless eagerly regurgitated by the media pack, many of whom enjoyed overseas trip to simply re-type media releases.
In an awe inspiring example of spin over substance the G-20 communiqué contains this piece of drivel
“We are taking strong actions to maintain financial stability, restore confidence and support growth. In Europe, Euro area countries have taken major actions to ensure the sustainability of public finances, and are implementing the decisions taken by Euro area Leaders on 21 July 2011. Specifically, the euro area will have implemented by the time of our next meeting the necessary actions to increase the flexibility of the EFSF and to maximize its impact in order to address contagion. The US has put forward a significant package to strengthen growth and employment through public investments, tax incentives, and targeted jobs measures, combined with fiscal reforms designed to restore fiscal sustainability over the medium term.”
Source: Communiqué- Meeting of Finance Ministers and Central bank Governors, Washington DC, 22 September 2011
Translation: Borrowing billions and trying to spend our way out of a debt crisis didn’t work. Ooops.
For the next few years at least, the European Union and United States are going to have to try and deal with the new reality of lower growth. They hope that they can bounce back by riding the growth in emerging economies but it remains to be seen how robust many of the emerging economies really are.
Of course everyone seems to be counting on China to keep growing rapidly thereby solving the world’s economic woes but as I keep saying, all economies go through cycles and China’s economy will also. Hopefully the slowdown in the Chinese economy will not be severe, but I would not bet the farm on it.
Meanwhile back in Australia, the Prime Minister Julia Gillard, has asked Ken Henry to put together another report, this time he going to look into Australia’s role in Asia. (yet again)
I suspect this report, which will cost taxpayers a small fortune, will end up filed in the dungeon with Henry’s last masterpiece – the Australian Taxation Review. But at least we were paying Ken Henry less when he worked for The Treasury, now we are effectively paying him a lot more and will end up with a report we could probably find via a Google search.
It also seems that the Australia 2020 Summit was a complete waste of time (no surprise there) as Australia’s ‘best and brightest’ also looked into the issue of Australia’s role in Asia at that Rudd inspired love-fest in 2008. Action points were even developed, but of course nothing was ever followed up on and nothing of any substance will result from the latest political smokescreen exercise either.
The lights are on at The Lodge in Canberra but nobody is home – if you catch my meaning.
Is it any wonder we are in a bear market again?
Greg Atkinson is the editor of Shareswatch Australia and the Managing Director of Ohori Capital He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp