We will see some tidying up in our market today with the end of the financial year, but that won’t disguise the worldwide trend for the six months to June: it’s been the worst for 26 years and no one has got any confidence about the next six months.
Thanks mainly to the influence of the oil price surge, with an overlay from the credit crunch and the slowing world economy (especially the US economy) global equities are heading for their worst first-half performance in 26 years: that’s after a week in which oil surged to a record and there were renewed worries about the health of the financial system and ¬global growth.
A high of $US142.99 a barrel for oil sparked a tumble in markets: the Dow Jones Industrial Average on Friday closed just shy of 20% below its record high set in October and is on the edge of entering an official bear market.
By Friday the MSCI world equity index had fallen 12% since the start of the year, its worst first-half run since a decline of 13.8% during the first six months of 1982.
But the AMP’s Capital’s head strategist, Dr Shane Oliver still sees a rebound later on.
He wrote Friday, before the 100 point fall on Wall Street Friday night: "There is a good chance shares will see a decent bounce over the next few weeks. After very sharp falls from mid May shares are very oversold and Australian shares should receive a fill-up as tax loss selling comes to an end.
“It’s worth noting that traditionally July has been a good month for Australian shares, as investors buy back in after tax loss selling ends.
"Beyond a possible bounce over the next few weeks, the going is likely to remain rough over the next 3 or 4 months.
“Slowing growth, very high oil prices, inflation worries and high bond yields are all short term headwinds for shares. Furthermore, the period out to September/October is often rough for shares (see the chart above). As such, it remains a time for investor caution and this is likely to be the case for the next few months.
"Although the next few months are likely to remain rough, we still see shares rallying sharply in the December quarter as the oil price falls back, the economic outlook starts to improve and investors start to take advantage of attractive share valuations. The last quarter of the year is normally strong."
Even though Wall Street was weak again, as was most of Europe and Asia (China’s markets were down around 5% or more), our market halved an earlier 3% fall Friday to close on a sort of an upbeat note. That continued overnight for the future market trading and we are looking to be flat at the opening, instead of Wall Street’s 1% decline.
Oil’s climb to $US142.99 a barrel, and then settling back to end at $US140.21, plus rises in the price of gold and copper, should help the resources sector, which is now the only thing keeping our market from joining Europe and the US down below the March lows, or even lower.
Our relative optimism though remains curious given the problems seen in non resource areas with the banks, property, retailers and other mainstays still being belted by nervy investors.
In the US, sharemarkets start the second half of 2008 tomorrow eyeing the return of a bear market.
Fundamentals are out the door and two factors rule: fear and rising oil prices. Oil almost hit $US143 a barrel amid forecasts of $US150 to $US170 within months and gold hit a one month high. Food futures prices were easier Friday.
The Dow extended its retreat from an all-time high last October to almost 20%, where the bear market kicks in.
Consumer stocks in the S&P 500 fell to the lowest level since 2003 as oil topped $142 a barrel. A key bank index (the KBW index of commercial and regional US banks) has dropped 21% so far in June. It slumped to multi-year lows last week and the financial sub index in the S&P 500 also weakened.
The Dow lost 106.91 points or 0.9% Friday to 11,346.51, within a touch 0.1% of a bear market. The Dow has dropped 10% this month, itself a correction, for the worst June since 1930. The S&P 500 eased 0.4% to 1,278.38 and the Nasdaq Index slipped 0.3% to 2,315.63.
The S&P 500 slumped 3% last week, the Dow 4.2% and the Nasdaq 3.8%. The S&P 500’s 8.7% fall so far this month has been the worst monthly performance since the 11% plunge in September 2002.
Our market was off a mere 1% in contrast and all of that and a bit more came Friday in reaction to the Thursday plunge in the US.
Asian stocks overall fell for a third week, ending the worst first half in 16 years, with the US slowdown, credit crunch, inflation and especially those record oil prices hitting sentiment.
The MSCI Asia Pacific Index lost 2.2% last week It’s fallen about 13% over the first six months of this year, its worst performance since a 23% drop in 1992.
Tokyo’s Nikkei Index lost 2.9% last week, taking its loss to a seventh day. The New Zealand NZX 50 Index fell to its lowest since December 2005, dropping 1.7% after the economy shrank in the first quarter.
Car makers, technology groups and consumer companies in retailing and electronics were weaker across the region. Brambles jumped 15% to $8.73, its best week ever on solid 11 month business figures and expectations for the full year, especially in the difficult US and European economies.
Resources groups were on the whole stronger (like in Australia). BHP Billiton fell 3.9% to $42.89, despite that big rise in iron ore prices won by its takeover target, Rio Tinto. Rio fell 6.5% to $132.04
