Market update - April 2011
Overall, the amount of available opportunities within the Australian sharemarket is encouraging and valuations remain broadly supportive. However, short term headwinds exist beyond the well documented global issues that have dominated the news in the last quarter. For example, while no longer grabbing the headlines, the impact of the Queensland floods (and indeed persistent poor weather) may well continue to impact short term earnings for those companies affected. Looking through the short term though, the stock market is well positioned to benefit from very strong domestic investment that is starting to come through which is likely to drive the economy through the next few years. This of course will be focussed largely on the resources sector infrastructure. Investors will also be trying to establish in what ways this investment theme will affect the rest of the domestic economy, the softness of which has been the subject of many column inches of late. There is potential for strong returns across the breadth of the market. For example, despite the ‘perfect storm’ facing retailers at the moments, there are no doubt selective opportunities where valuations are compelling.
On the global front, familiar issues continue to dominate markets, albeit recently put to one side somewhat by geopolitical issues and the terrible events in Japan. In the US, the markets have proved resilient with investors confident that the recovery will be robust and hence the earnings recovery in corporate America a strong one. There are, however still doubts. The recovery in housing is not just around the corner and there are a few worries creeping in about how and when the second round of Quantitative easing will be reduced. In Europe, the situation is reminiscent of the late 1990s where central bankers are hawkish, yet most of the region’s economies are still sluggish. As is often the case however, equity markets may not be in kilter with the short term economic trends and the ‘growth’ trade seems to be firmly on the table, partly spurred on by continuing M&A activity – both real and rumoured.
Fund Manager Commentary