Market finally back over pre-gfc mark

AUSTRALIA’S share market has clawed its way to a record high, finally shaking off its hangover from the global financial crisis as investors bet interest rates will remain lower for longer.

The nation’s benchmark share index, the ASX 200, yesterday closed at 6845.1 points, eclipsing a record that had stood for almost 12 years.

It follows a stellar run by Aussie stocks that has added more than $350 billion to the value of the nation’s top listed companies since the start of the year. But the new high has been greeted with caution rather than champagne corks by fund managers, who say while shares can continue to rise, their gains are being fuelled by low interest rates rather than a booming economy.

That, they warn, opens up new risks for investors shifting money into shares as returns from less risky fixed-interest investments, such as term deposits, all but disappear.

“There is an absence of value but that doesn’t stop share prices from going up,” Montgomery Investment Management chief investment officer Roger Montgomery said.

The ASX 200, which broadly tracks the value of the nation’s 200 biggest listed companies, closed 0.3 per cent higher yesterday. It also hit a new intraday high, of 6875.5 points.

The gains take the index past its previous closing peak of 6828.7 points.

That record had been set ahead of the GFC, which savaged markets across the globe and plunged the US into its worst economic downturn since the Great Depression.

The broader All Ordinaries index, which tracks the 500 biggest listed companies in Australia, broke through its pre-gfc peak last week.

Both indexes have risen more than 20 per cent this year as major central banks have either cut interest rates or indicated they are about to as the global economy slows.

Strong commodity prices boosting the fortunes of the nation’s major miners, coupled with a rebound in banking stocks sold off in the wake of the financial services royal commission and a new boom among technology companies, have also fuelled the market.

Mr Montgomery said although companies’ share prices were at eye-watering levels compared with their historical earnings, an extended era of low interest rates could easily continue to push markets higher across the globe.

“If you get a situation where the economy is growing reasonably well, and the central banks are going to stimulate anyway, and President Trump and President Xi reach a trade agreement, you have got the ingredients of a very strong market despite the fact that there may be an absence of value,” he said.