The ASX All Ordinaries Index is continuing on its recovery path. The index has increased by about 4.5% for the period.

The performance is encouraging but still the Australian Share Market continues to underperform the S&P 500 and the major European markets.

The themes outlined in the October commentary and are not disappearing, briefly, those themes were European debt, the aggressive monetary policy in the United States and China where it is anticipated that growth levels may decline due to raising interest rates and central government interventionist policy.

Notwithstanding all the doom and gloom we are approaching 2011 and the new decade with a degree of optimism. The reasons are:

• The expectation of the recovery to continue. This reporting season will be an important gauge whether business recovery is on track.
• The parameters by which companies are measured are still low. Generally company debt is low.
• There is a pickup in activity either through companies raising capital and/or increasing merger and acquisition activity.

The recent floods in the NSW, Queensland and Victoria will in the short term have an impact upon the local communities and the economy, however over the medium term the effect should be positive and provide benefits to construction and building materials companies.

The pickup to date seems to have been in single commodity companies i.e. iron ore, coal, copper etc. The prospect for the major commodities continues to be optimistic for 2011.

It seems that in the USA the signs are the economy is on the mend with economists reviewing their growth forecasts from 2.9% to 3.5% for the year.

With respect to the portfolios there has been an increase in activity and I anticipate this to continue at least until March / April.

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