Market update – insights and understanding
Since the US and Australian share markets reached highs in 2007, investors have experienced what some have compared to a roller coaster ride. As a result of the Global Financial Crisis, both US and Australian share markets fell significantly, reaching lows in March 2009. Since March 2009 both the US and Australia share markets have rebounded strongly. The US rose by over 68%* to reach a high in March 2010 and the Australian share market rose by over 57%* to reach a high in January 2010.
While this is good news for investors, US and Australian share markets are still 11%* and 13%* off their pre-crisis highs from 2007. The following chart shows Australian share market performance over the past 5 years to 31 March 2010.
What’s expected looking forward?
Shane Oliver, AMP Capital Chief Economist, says:
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“While markets have recovered significantly since their lows in early 2009, growth assets are still well below their pre-crisis levels. A number of factors have recently impacted investor confidence, resulting in a correction in global share markets and in other growth assets like commodity prices and the Australian dollar. In particular, investors are increasingly concerned about high debt levels, particularly for some European countries and the sustainability of strong growth in China. In addition, Australian shares and the Australian dollar have also been adversely impacted by concerns around the proposed resources super profits tax. One result of the recent pull back means that share markets in Australian and emerging markets, such as Asia and Latin America, once again represent very good long term value for investors. These countries are not hampered by the same high public debt levels as some of the European countries and have good economic growth prospects. Australian shares also enjoy relatively high dividend yields. It is important to remember that volatility is a normal part of share markets, with periods of gain often followed by pauses and corrections. More broadly we expect further gains in global share markets over the next 12 months due to the combination of improving economic and profit growth, low inflation and relatively low interest rates. Despite recent concerns about another Global Financial Crisis, the global economy is far less fragile than it was two years ago. We have gone from a position of global recession to global recovery, and that is good news for investors.” |
For the latest market updates, including a monthly market update video featuring Dr Shane Oliver, go to www.amp.com.au/volatility.
Smoothing the way to reach your goals?
As an investor, you might reap real benefits by adding smaller, regular amounts to your investment over time - also known as “dollar cost averaging”. Because markets move up and down, you will sometimes buy at higher prices and sometimes at lower prices. When prices are higher, you’ll be able to buy less units with the same investment amount than when markets are lower. Over time, the price you pay will be averaged out. This can be reassuring at a time when markets are fluctuating and you don’t want to risk adding a large amount just before a potential market decline.
Dollar cost averaging takes the guess work out of when to invest and helps develop a savings habit. Regular investing can also allow you to benefit from compound interest. Not only does each contribution have the potential to start generating earnings immediately, any reinvested earnings can also start working for you. With both your regular investment amount and any reinvested earnings able to generate returns, your investment has the potential to grow much faster.
Action
Starting a regular investment plan is easy. Once you’ve reviewed your budget to see how much you can contribute each month, simply complete the Additional Investments form on www.amp.com.au/investments. If you have any questions or would like more information about how these strategies affect your personal situation, contact us.
What you need to know
This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances. Although the information in this article was obtained from sources considered to be reliable, the information is not guaranteed to be accurate or complete. The information in this article is current as at June 2009 and may change over time.
