Market Commentary

by Chris Limberg on Mar 15, 2011

The quarter has been one of two distinct periods with the Australian sharemarket making a high of 5032 on 17 February 2011 and within four weeks making a low of 4560 on 17 March 2011.

During the quarter the volatility maybe attributed directly to outside events, namely the earthquakes and the tsunami in Japan, that crippled the nuclear power station, and the revolutions and unrest in the Middle East and North Africa.

The equity markets are absorbing the wall of worry. Notwithstanding the worries of the quarter the prediction is for the world economy is to grow by 4.0% in 2011 and by a similar percentage in 2012.

The economic fundamentals in Australia continue to remain strong supported by strong commodity prices and generally the balance sheets of Australian listed companies being in good shape.

The consumer confidence in Australia has been shaken by the abovementioned events, by the floods in Queensland and Victoria, and the actions of the Reserve Bank continue to impact upon consumer confidence. The RBA has raised domestic interest cash rates from 3% to 4.75%, while interest rates are near zero in most industrial economies. The booming commodity market has resulted in an Australian dollar achieving new decade highs which is making Australian industry uncompetitive.

The economic positives are:

  • The continuing ease of monetary policy in response to the sovereign debt crisis in the advanced industrial economies,

  • The reconstruction spending in Japan, Australia and New Zealand is significant, and

  • In due course the easing of monetary policy in China and India, Australia’s major trading partners will continue to benefit an Australian recovery.

In terms of the positives there is still high uncertainty in respect to Europe’s debt and issues relating to the solvency of the European banking system and the rising oil price continues to make consumers extremely wary.

Uncertainty remains and the sharemarket will continue to rise and fall depending were the “Wall of Worry” is at in respect to investor sentiment.

Should you have any queries or want to discuss the above or your portfolios please do not hesitate to contact us.