22 October 2014

Weekly Market Update ~ week ending 17 October 2014

weekly market update
Investment markets and key developments over the past week

Global shares had another rough week on worries about global growth and as the Ebola scare continued to build. Despite a rally in US and European shares on Friday most share markets fell with US shares down 1% for the week, European shares down 0.8%, Japanese shares down 6.1% and Chinese shares down 1.4%. However, Australian shares having led on the way down, managed to rise over the last week as investors started to look for bargains. 8% yields on Australian banks are hard to resist. Global shares are now down 7.4% from their September high and Australian shares are down 6.8%, although this has been pared from an 8.9% decline to the low on Monday. Bond yields continued to slide on global growth fears and on the back of safe haven buying. Commodity prices remained under selling pressure but the Australian dollar rose slightly as the $US pulled back a bit on talk that the Fed may delay the end of QE and/or rate hikes.

While doom and gloom is now rife, there are some signs that shares may be at or close to a low: the 8.4% (September top to recent low) correction in global shares is around the size of the average correction seen since the current bull market began in 2011; in fact US and Australian shares have had a healthy correction of nearly 10% top to bottom using intraday data; markets that led on the way down like Australian shares and US small caps have been clawing back in the last few days; the last few sessions have seen US and Australian shares rebound from intraday lows suggesting that bulls may be starting to get the upper hand; investor sentiment is now so bad that its good – with our composite measure of investor sentiment in the US having fallen to levels often associated with share market lows (see chart below at top); and the month of October is known for seeing shares start to turn back up after seasonal weakness ahead of a rally into year-end (see chart below at bottom). From a fundamental perspective the fall in share markets has seen shares move well into cheap territory (with the forward PE on Australian shares at around 13.7 times, being well below its long term average) and lower bond yields also adding to the relative cheapness of shares.

To read the full article, please click here:  Weekly Report ~ 17 October 2014

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