Is this the beginning of the end for equities? 9 JULY 2014 AFR Many investment managers believe the Australian sharemarket will push higher over the next 12 months, but not before a meaningful pullback in prices. BIANCA HARTGE-HAZELMAN Could we be at the start of the selloff in equities that many investment managers have spent months calling? Many developed market stocks are regarded as being expensive but still this hasn’t stopped them climbing to record highs. The Australian benchmark index S&P/ASX 200 is up 13 per cent over the past year, and is trading at 19.6 times forward earnings. Wall Street has also been trading at records and at a valuation of 18 times reported earnings, the highest since 2011 when it was in the middle of a 19 per cent slide, its biggest during the current five-year bull market, according to Bloomberg. But the Dow Jones has been unable to hold above the record of 17,000 mark and dropped 118 points overnight as investors locked in profits ahead of the second-quarter reporting season, with US miner Alcoa the first company to post results that beat expectations. Longview Economics chief market strategist Chris Watling said that 2014 was on course to be one of the quietest years of volatility in the past 50 years. “Indeed years without a pullback of 7.5 per cent are rare indeed – with only nine years in the past 50. Rarer still are years with no pullback larger than 5 per cent, with only one year in the past 50 years and only four since the start of the data in 1928,” he told Livewire. Many investment managers believe the Australian sharemarket will push higher over the next 12 months, but not before a meaningful pullback in prices. This could be in the order of about 10 per cent. “It is expensive,” said National Australia Bank analyst Emma Lawson. “That has been the mantra right across asset classes for months. Then, periodically, markets get super worried about that and take profits. Across asset classes, and ignoring any of the underlying macrodata or evidence that the liquidity rug isn’t going to be pulled out from under them soon, there is a move to unwind positions.” Tuesday night, US and European stocks extended a selloff, with the Nasdaq sliding the most in two months. US stocks were hardest hit in the small cap sector, with the Russell 2000 underperforming. This drove yields lower but was supportive of the Australian dollar and New Zealand dollar. The Chicago Board Options Exchange Volatility Index, which measures the level of fear in the market, also added 5.7 per cent to 11.98 points – its biggest two-day rally since early April, according to Bloomberg. “A sustained rise in market volatility poses risks for the AUD and yield plays, but it would need to be sustained before we worry,” said Ms Lawson. Global equities climbed to $66 trillion at the end of last week, helped by six years of gains in US stocks, the Dow Jones breaking above 17,000 points for the first time. Over the past financial year the Chicago Board Options Exchange Volatility Index has remained near record lows, which has only further fired the global hunt for higher returns in equities. afr/p/markets/is_this_the_beginning_of_the_end_vSxGSHEcpSTlfETvXuKguN
Posted on: Wed, 09 Jul 2014 09:28:13 +0000
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