FYI | Aug 26 2015
By Peter Switzer, Switzer Super Report
The question all investors and managers of self managed super funds must be asking is: “Are we staring at the start of a stock market crash? Or is this just an overdue correction?”
If the latter is the case, then this is a really good ‘buying the dip’ opportunity, albeit a scary one.
AMP Capital’s Shane Oliver thinks it’s a “healthy correction” but he got even more ballsy with this following conclusion to his regular weekly note: “But beyond the near term, the cyclical bull market in shares is likely to resume…As such, despite the current significant setback, share markets are likely to remain in a broad rising trend. Given this, I’m reluctant to ditch my year-end target of 6000 for the ASX 200"!
That’s my exclamation mark and that’s because I really like his view on where stocks are heading.
Negativity or opportunity
There is a good chance that US investors could run with this negativity this week but you can’t rule out smarties seeing this sell off as a buying opportunity.
The Yanks have been overdue for a correction and the Dow and the Nasdaq have actually pulled one off with this current rout but the reality is, on an objective and a numbers basis, markets were due for a bad day at the office.
CommSec’s Craig James has pointed out that: “With a clear absence of ‘fundamental’ issues, the global share market sell off appears more a correction than the start of a new crisis.”
He did the figures and concluded that the world’s most significant stock markets were ripe for a plucking by sell-off merchants.
“That’s especially the case,” James advised, “when you consider that global share markets had become over-valued with the forward price earnings ratio for the US S&P 500 index lifting to be around 18% higher than the decade average with the European market 21% over-valued – before the recent falls.”
And in Australia, our All Ordinaries index was around 10% higher than the decade average back in July.
Since March 23, our S&P/ASX 200 is down 13% and this is because there’s been a lot of disappointment and challenges this year.
Like what?
There were the Greek debt worries and what they could mean for Europe and even over the weekend we’ve heard that a snap election has been called.
Uncertainty is bad for stocks and that’s what the Greek issue has brought.
The Chinese economy is growing slower than expected and the recent manufacturing numbers were even worse than forecast and implied the sector is actually contracting. Of course, it was always going to happen as services become more important to Chinese growth, but this has come faster than expected. It has brought a Government response of more monetary and fiscal stimulation but this has worried stock players.
On top of that we saw a 30% fall in China’s stock market and a run of small devaluations and these have also spooked markets. As I say, uncertainty weighs heavily on markets.
And then there’s this cursed Fed interest rate rise, which has been on and off for over a year! It was expected to be in September but recent minutes from the central bank meeting on rates gave out the message that ‘you shouldn’t put your money on a September rate rise’.
Now this unsettled markets, with some analysts suggesting that the Fed is more nervous about the US economy than the majority of economists.
Also, there is a currency problem with emerging market economies with a run of devaluations making the US economy less competitive and it’s made worse with the euro remaining on the low side.
Under those circumstances, the Fed could hold back a rate rise that would take the greenback even higher!
It’s uncertainty that has sent stocks down but there’s not a clear-cut case for panic – just a sell off or a correction.
The Paul Keating correction
This is how Craig James sees it: “At present, we would view the global share market correction as a correction we had to have – a situation that will be beneficial in injecting more value into markets. There are clearly risks, but the data indicates that US and European economies continue to recover; lower oil prices will serve to boost consumer and business spending; and Chinese authorities are trying a range of measures to maintain momentum in their economy.”
He goes on: “We have not adjusted our share market targets. They are under review, but new estimates will be determined once the domestic profit-reporting season concludes.”
And I think he and Shane Oliver are spot on.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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