Your market update
Following market highs in November 2007, the Global Financial Crisis lead to share market falls of over 50%* in Australia and the US. Since the lows in March this year we’ve seen a resurgence in share prices in Australian and the US with shares up over 50%*. At this time Australian shares are close to the 12 month highs which were seen in September 2008.
Past performance is not a reliable indicator of future performance.
(Source: Factset, 30 September 2009)
What does this mean for you?
Whilst share markets have not reached their previous highs, some significant recovery over the past 12 months is evident. More specifically since 30 June 2009, investors with an exposure to share markets are likely to have experienced further recovery of their portfolio.
There continue to be a number of positive economic indicators, including an improved company profit outlook during the current reporting season, with 44% of companies reporting profits above expectations. Along with continued improvements to business and consumer confidence, this supports the view that the upward trend in markets may continue. Of course, periods of negative return or “corrections” are normal, even in an up-trending market.
What to expect in the next 6 months
Shane Oliver, AMP Capital Chief Economist, says*:Shares have had a significant run up from lows earlier this year. Because of this there is a risk that we will see some correction in share markets. However, this is likely to be quite restrained as there are still a lot of investors with large holdings of cash sitting on the sidelines waiting for an opportunity to re-enter the market. A pull back in the market can be the trigger for some of these investors to move from cash to shares, resulting in a further rally in share prices. While shares are no longer dirt cheap following the rebound in March, they are not expensive either. Not withstanding inevitable corrections, further gains are likely as the earnings outlook continues to improve. The global recession is ending and we are starting to return to growth. Australia has had a great performance overall, consequently the panic that occurred in the financial markets as a result of the Global Financial Crisis (GFC) has been unwound. The continued global recovery will further underpin gains in profits which will in turn underpin further gains in share markets. Going forward I would expect this to flow through to unlisted assets and diversified superannuation funds and more broadly diversified investment strategies*. |
What did we learn from the GFC?
One investment principle that was highlighted during the Global Financial Crisis (GFC) was the importance of having a well diversified investment portfolio. In simple terms diversification means “not putting all your eggs in one basket”. Even for those wanting high exposure to growth assets (such as shares and property), including more defensive assets (such as cash and government bonds) in your investment mix can help to reduce your overall portfolio risks.
One of the key benefits of managed funds is you can generally achieve significantly more diversification of your investments than as an individual investor:
- Across asset classes- A diversified investment will provide exposure to growth assets to help achieve long term objectives, as well as defensive assets that provide more stability.
- Within asset classes - providing more exposure to, e.g. a number of different shares providing exposure different industries and/or markets.
- Through a “multi-manager” approach to investing that involves using a number of different investment managers with the potential to benefit from different investment styles.
For the latest market updates, including a monthly market update video featuring Shane Oliver, go to www.amp.com.au/volatility.
* Source: Datastream/AMP Capital Investors, September 2009
