Sharemarket rebound long time coming

IT has taken almost 12 years for Australia’s sharemarket to celebrate a new record high, but investors should be careful of rushing in to join the party.

The All Ordinaries index, which maps movement of 500 major stocks, this week eclipsed its previous peak from November 2007, and the ASX 200 index came within a whisker.

There are mixed views among investment specialists about whether the market, up 21 per cent this year, will power ahead or shift into reverse.

Investors and would-be investors have questions: Why did it take so long to reclaim the record? Why are our shares at a record high when the economy looks shaky?

Catapult Wealth director Tony Catt said factors behind the recent rise included: LOW interest rates in Australia and globally has investors hunting share dividend income. REBOUND of bank shares since the royal commission. GROWTH in iron ore prices. AUSTRALIA’S low foreign exchange rate.

Questions remain whether the Reserve Bank’s interest rates cuts will help the economy, housing and employment, Mr Catt said.

“I’m 100 per cent of the view that you need to be cautious, particularly for new investors,” he said. “There is a flood of money into the sharemarket, which has been described as ‘the only game in town’ but rushing into shares isn’t the panacea.”

AMP Capital head of investment strategy Shane Oliver said the 12-year wait between highs was longer than US and European markets after the GFC because our Reserve Bank did not cut interest rates as sharply, the resources boom ended and the Aussie dollar had stayed relatively high.

“Once dividends are allowed for, as they should be given the higher dividend yields paid by Australian companies, the Australian share market surpassed its 2007 record high way back in 2013,” he said.

CMC Markets head of sales trading Ash Glover said in the GFC other countries “threw the kitchen sink at their economies”.