AUSSIE MARKET RISE
Our stocks seen as better priced than US
AUSTRALIAN stocks avoided another bloodbath yesterday, with the market rallying on expectations local equities are now more reasonably priced than those in the US.
The ASX200 closed 136 points, or 2.72 per cent higher, at 5137 points in a volatile trading day that saw it dip to as low as 4928 points before staging a solid recovery.
China’s Shanghai Composite tumbled another 7.6 per cent yesterday.
In an attempt to prop up its economy, China’s central bank last night announced it would slash interest rates and allow its banks to lend more money. It was a move welcomed by global markets.
Australia’s market is still down 10 per cent this month, headed for its worst performance since the GFC.
Some market watchers now believe the ASX200 may be more attractive to investors because, unlike US markets, it never climbed above its preGFC level.
The Dow Jones Industrial Average in the US has rallied 125 per cent since the depths of the GFC in March 2009. By comparison, Australia’s ASX 200 and China’s Shanghai Composite are up 54 per cent.
CommSec economist Savanth Sebastian said US and European stocks had been considered to be overvalued by 18 and 22 per cent respectively before the current correction. Australia had been about 10 per cent overvalued.
The Dow, Nasdaq and S&P 500 have all surged to record highs this year, driven by good earnings and low interest rates in the US. The ASX 200, by contrast, has struggled to get above 6000, far from the record 6828.7 reached in November 2007.
The ASX 200 is now trading at a 15 forward price-to-earnings ratio, slightly less than the 16 for the S&P 500 Index and 15.5 for the Dow Jones Industrial Average.
Mr Sebastian said the market still had potential to fall further, given concerns China was headed for a hard economic landing.
“There is still a lot of volatility in the market and these gains could disappear in the blink of an eye,” he said. “There will be some bargain hunters in the market basically nibbling around the edges but it will not be fully fledged buying.”
Fund managers at Armytage Private said Australian stocks in general were now not expensive. “There are many good sectors to have exposure to,” Armytage said, citing construction services and health.
They said the Chinese stock market was a casino. “Shortly, the punters will realise that the “house” has won and normality will return,” Armytage said.
CMC Markets chief strategist Michael McCarthy said the US share market had run without a correction since the first quarter of 2012.
“That’s a very long period for the US market to go along without a breather,” he said.
Jamie Nicol, of Brisbanebased fund manager Dalton Nicol Reid, said the latest reporting season showed balance sheets of companies were strong, aside from some in the energy sector. “There’s not too many companies that have taken on too much debt,” Mr Nicol said. That was a key difference between now and the GFC, he said.