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Are we on the road to the recovery of the markets?

October 14th, 2008 · Greg Atkinson · No Comments

Without doubt, we have seen some of the most turbulent times ever on the worlds stock markets. Now what we want to know as investors is if the worst is over and if so, can we expect over time a gradual improvement in market conditions?

As I wrote back in March this year, I felt that the Australian All Ordinaries Index at that time was close to a bottom. At that stage the All Ords was at around the 5000 level and I felt we would move sideways for some time in the range of about 4800 – 5200. (with the odd movement up or down outside this range)

The reason I picked this range was because it represented approximately a 25% hit from the Index high in 2007 (around 6500), and I estimated (guesstimated) that was the sort of fall the Australian market would take as a result of the credit crisis and slowing economies across the world. (although the underlying Australian economy and banking system was sound)

What I did not anticipate however was the bungled actions of the U.S Treasury and a worsening of the situation in the credit markets which sent the All Ords down recently to around the 4000 level. However I believe we are now finally seeing things work themselves out (with a lot of help from governments around the world) and that the All Ords will bounce back fairly quickly into the 4800 – 5200 range again in a matter of days rather than weeks.

After that if the credit markets continue to improve, we may even overshoot the 4800 – 5200 range and close the year closer to 6000.
In short I think we are finally getting to a point where we are closer to the end of this crisis than the beginning.

There will still be challenges ahead and it will take some time for economies around the world to recover, but remember stocks trade depending on how the market thinks companies will perform in the future, so by their nature stock markets tend to rise before economic conditions actually improve. (just as they tend to fall before conditions deteriorate)

Therefore we may seen some good gains later this year and early next year ahead of any signs of improvement in the Australian economy. In any case, over the next few months we should have some idea how 2009 might treat our portfolio’s and let’s hope that 2009 is a more generous year for investors!

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