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Aussi sharemarket in 2011

Its that time of year when so-called stock market experts tip the course of the All Ordinaries Index over the coming year.  Its also the time when cynics routinely (but quite fairly) deride the value of such predictions.  Self interest motivates me to take a highly conditional attempt to work out what will happen.

If you inspect trends in the All Ordinaries Index since 1989 (this is a useful charting tool) you can see that the main run-up in the market occurred from 2003-2008 when the GFC had its major impact.  Since then the market has reverted to where it would it would have been on the basis of trends before the major run-up.

This suggests to me some basis for optimism of a good outcome for punters in 2011.  Surely events since 2003 justify a valuation now that lies somewhere above trend. The Australian economy is performing strongly and the stimulating role of explosive growth in the mining sector will continue provided China continues to grow.  Stocks like BHP-Billiton and Rio Tinto are selling at about 10X forecast 2011 earnings – the forecasts came from COMSEC – which seems cheap.  The only bearish factor I can foresee is a dip in the Chinese economy and, while that cannot be ruled out, I cannot see it being more than a temporary dip over styrong trend growth over at least another 20 years. Against that continued weakness in Europe and the United States economies should motivate investors there to see Australia as a safe proxy for investment in north and south Asia.  A punt on the miners is a punt on China.

Medium term I like the agricultural sector which should increasing satisfy demands for high-valued protein in increasingly prosperous Asia. I have been saying that for a while however but still I like this sector.

Spending might only grow sluggishly but I continue to see value in high end retailers like David Jones which should provide a fully franked dividend yield of close to 7% in 2011.

Politically Labor will have lost power in all the eastern states (except Tasmania) and in Western Australia. Also I think the poor-performing Gillard-Rudd Government will be turfed out (even if Kevin stages a comeback) with Tony Abbott becoming Australia’s next Prime Minister.  This would be a positive for the economy medium term even if it is a bad outcome for the serios task of addressing climate change.

So overall I am somewhat bullish – a 10 to 20% increase seems a reasonable guess. But I am not a trained stock market analyst. These are the people you should consult if you seek investment advice, not me.  I do like to try to think these things through myself.

1 comment to Aussi sharemarket in 2011

  • ken n

    Harry – few money managers these days believe anyone can forecast the market. Most analysis of past performance suggests that the main determinants of results are strategic assest allocation – between shares, property, fixed interest and cash, mostly – and then stock selection – picking individual companies in other words. Tactical asset allocation – changing between asset classes and markets- more often reduces performance.
    The managers I respect say they look for good businesses, wherever they are.

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