Articles
Current Market Update
11th August, 2011
A balanced view on today’s global markets With recent reports on falling markets, it’s not hard to imagine you’d be concerned about your investments. I’ve had a number of clients contact me, some asking whether this volatility is a precursor to another global financial crisis; some wondering how long we can expect market uncertainty to last. Interestingly, a select few have asked if it’s a good time to buy investments cheaply!
Globally, the appetite investors have for risk has significantly fallen since late April, which has seen global share markets fall by around 18%. For the most part, this has been a reaction to the building concern for the slow spread of the European debt crisis and the recent US debt situation. In both cases, the delay in action by policy makers has been politicly based and has taken its toll. You’ll have seen in the news the political football that saw President Obama’s debt deal agreed on the last possible day. In isolation, these media reports are disconcerting but there are a number of reasons to be confident in share markets.
While many countries government debt is large, there are companies around the world faring much better. In the US alone, there’s $1.5 trillion in cash sitting on company balance sheets. Just today we have seen the Commonwealth Bank announce a $6.8 Billion profit, up 12% from last year. Stockland have announced an increase of 8.7% in profit and Domino's Pizza has had an increase of 20% in full year profit. (We must be eating lots of Pizza) This is just a small example of Australian businesses that are part of our share market but it just indicates that the fundamentals are still good and many businesses are not struggling.
Thanks to the learning's from the GFC in 2008, most businesses and particularly banks are generally stronger, more transparent and have lower debts. Because of this, I think there are some great opportunities for those with a medium to long-term time horizon and now is not a time to panic and make decisions that might be regretted in the longer term.
The Australian Federal Government continues to maintain its AAA credit rating and, although the economy has softened in 2011, we do have the benefit of strong export partners such as China and India. However, we aren’t insulated from the global uncertainty and that's reflected in large falls in the Australian share market. These falls are driven by fear and don't take account of the good fundamentals of our economy.
In summary, there will be a lot of volatility over the next few weeks but I believe the fundamentals or a strong economy and the action of businesses determined to make profits will shine through both here in Australia and overseas.
I also get a lot of information emailed to me on a daily basis which I would be more than happy to pass on. If you send me an email I will forward on anything that I think is worthwhile reading. In the mean time if you have any questions please don't hesitate to give me a call.
Regards,
Drew Walden
Authorised Representative of
Professional Investment Services
