One thing all investors would like to know is if the Australian Stock Market has reached a bottom and when things will start to recover. Like everyone else, I cannot predict the future but I can at least outline what I think (hope) will happen and how I am positioning my own investments.
Please note I am not a financial adviser/planner (and have no intention of being one) and the following comments are my personal observations/notes. Nobody should ever act on anything I say without first seeking professional advice and undertaking their own research.
First my assumptions for 2008 are:
– The US will enter a period economic slowdown. (and probably already has) I do not care if it is a technical recession or not, simply things will not be so good for the average consumer in the US for most of 2008.
– The global economy will slow in 2008. Some of this due to a slowdown in the US and the Eurozone is dealing with some issues as well at the moment. I also suspect China will come off the boil somewhat after the Olympics frenzy and due to the fact that it is no longer the prime location for setting up a cheap offshore factory. (due to rising wages/costs)
– The Australian economy will slow further. The Rudd and Swan show will finally realise they are not suppose to keep talking down the economy but it will be a little too late as the damage will have been done by the RBA interest rate hikes and the slowing global economy. Sometime later this year I suspect the RBA will cut rates when they go “oops we went too far”. (although the RBA will express this in a economists complicated way of saying the same thing)
– Commodities hard and soft have already had a correction. This is a short term blip on an otherwise unstoppable upward trend. The rise in prices will be driven again by market fundamentals. Oil should stay below $100 a barrel for quite some time.
– And finally, the credit crisis will pass into history later this year. New rules will be put in place, many Wall Street bankers will lose their bonuses/jobs. All will be well until history repeats itself again and another problem in the market needs to be corrected. Possibly a commodities bubble?
So what does this mean for the Australian Stock Market?
I believe the bottom has been reached or is close to being reached. This does not mean some stocks will not be sold down more or that more companies will not find themselves in trouble as even during a bull market this happens, but slowly the overall market will improve. There will be jumps and falls as always but by the end of the year I am expecting we will be close to recovering the recent losses. Not all stocks will recover at the same rate so people will need to be patient.
Also, contrary to a lot of experts and market commentators I believe that the good old financial sector in Australia will bounce back and that there are bargain stocks out there now waiting to be snapped up. I expect this is the sector that will help drive the market rally.
Finally although the Australian economy will slow, the continued demand from commodities both soft and hard will keep things ticking along albeit at perhaps a slower pace. However although many Australian companies will do well, we need to remember we are not the only continent that has significant mineral reserves etc and I would guess we will see mining operations in Africa ramp up significantly over the next decade. As a result, there could come a time when some resources become expensive to source from Australia.
Once again let me stress these are just my views and they could be absolute rubbish. I have been very wrong in the past and I will be very wrong again in the future although at times I have made a few good calls. (probably through luck)