The Great Recovery – Sharemarket trends
• More than half a trillion dollars has been added to the capitalisation of the Australian sharemarket since March. Market cap currently stands at just over $1.4 trillion.
• While the value of sharemarket has lifted almost 60 per cent since the March lows, it has also become more concentrated with almost half capitalisation held in banks and resources. And just over a third of sharemarket value is held in just six stocks – ANZ, CBA, NAB, Westpac, BHP Billiton and Rio Tinto.
The Great Recovery
• We have had the Great Depression. And in some advanced countries the recent economic downturn has been termed the Great Recession. But more positively – and in the same vein – the strong, swift recovery of the sharemarket since March could aptly be described as the Great Recovery.
• The value of shares on the Australian sharemarket currently stands at just over $1.4 trillion ($1404.7 billion). Since March 9, market capitalisation has lifted by over half a trillion dollars ($519.4 billion) or a gain of 58.7 per cent.
• There is still some work to reach the highs set on November 1 2007 but it looks far more achievable than appeared the case just seven months ago. Sharemarket capitalisation needs to rise by almost 25 per cent to reach record levels.
• Certainly the fall from grace for the Australian sharemarket was remarkable. Between November 2007 and March 2009 the value of shares on the Australian sharemarket almost halved, falling by just over $847 billion or 48.9 per cent. But since, just over $500 billion of the paper loss has been recovered with just over $300 billion to go.
With recovery comes concentration
• The recovery of the sharemarket appears remarkable, but not if you consider the performance of the economy. If an economy grows, it will be reflected in sales, profitability and therefore in the size and value of Australian companies. The Australian economy avoided recession and is now accelerating out of a slowdown. The Reserve Bank certainly expects the economy to gain pace over the coming year as reflected by the recent decision to lift interest rates.
• In essence the sharp decline in the value of the sharemarket was unwarranted as the Australian economy failed to follow other economies into recession.
• The main problem is that the dollars flooding back into the sharemarket have tended to flow to the main banks and resource companies.
• Currently three of the 19 sub-sectors account for almost half the capitalisation of the sharemarket. The S&P/ASX 200 sub-sectors – Banks, Materials & Energy – account for just over 48 per cent of sharemarket capitalisation, up from just over 39 per cent at the start of 2007.
• In fact just six stocks account for over a third of the capitalisation of the entire sharemarket – ANZ, NAB, CBA, Westpac, BHP-Billiton and Rio Tinto. Capitalisation of these six stocks has soared by $228 billion from the lows recorded late last year.
• If the shift of funds into the ‘Super Six’ companies just represents a shift into large, safe-haven companies at the start of the sharemarket recovery then there are few long-term implications. As the recovery matures and consolidates, investors should feel more comfortable to embrace small and medium-sized companies, leading to less concentration of sharemarket value in a small number of companies.
• However if sharemarket value continues to be concentrated into the top stocks then key indices such as the ASX 200 and All Ordinaries will be far less representative. It is important that investors are aware of the power that the ‘Super Six’ companies exert.
Have investors become too exuberant?
• The sharemarket has rebounded a long way in a short time period. As a result, this raises the question about whether investors have become too exuberant. And in this respect an interesting dichotomy has developed. The forward price-earnings ratio, measuring share prices against earnings forecasts stands at 17.82, well above the decade average of 16.09. However the lagged PE measure, comparing actual share prices against actual earnings, stands at 14.7, below the decade-average of 15.4.
• Which measure is right? Analysts were pleasantly surprised by the resilience of earnings in the latest reporting season and many have sought to upgrade forecasts. But it is probably fair to say that analysts still harbour doubts. So the upgrade path still has further to go.
• The lagged PE measure requires no adjustment of views, so in the current environment it is arguably the more accurate valuation measure. The bottom-line being that the market is neither super-cheap nor expensive. If companies continue to offer positive guidance about earnings, then the sharemarket will continue to track higher, however at a more modest pace than has been the case to date.
• CommSec expects the sharemarket to end the year around 5,000 points and lift to 5,300 points by mid 2010.
Source Craig James, Chief Economist, CommSec
| Date:22 June 2009
STUNNING OFF THE PLAN APARTMENTS
As reported by 
Hmmmmmmm….something very exciting must be on tv on a Tuesday as sooooo many people seemed to have “missed” watching the budget! For those of our lovely friends who seem to be living in a bubble, last Tuesday night saw the announcement of the 2009 budget with some very important facts for first home buyers! Surprisingly it was uncovered at many of our open homes over the week-end that most keen lookers had no idea that the first home buyer grant had been extended!!! So, here we go! Your good friends at The Novak Agency are here to give you the heads up on what the budget means for you if you are a first homie… The grant varies from state to state however here in NSW the grant has increased for First-home owners entering contracts between July 1 and September 30. You will continue to receive the boost of $7000 if you’re buying an established home and $14,000 for those wishing to buy a new home. The boost will halve for those of you entering into new contracts from October 1 until December 31, with those buying established homes receiving $3500 while those buying new homes will receive $7000!!! Now that we’ve loaded you with this vital information it’s important that we emphasise the urgency to purchase your first property! Let’s face it….there are literally thousands of scouters out there and you’re all looking for the same thing. Supply simply cannot keep up with demand right now so if it’s a brilliant buy you’re after at a brilliant price we suggest you get snapping! Alternatively it may take you some time to find your perfect home, leave yourself ample time to look around. In addition, it does take time to arrange finance so don’t be leaving all your paperwork until the eleventh hour. Now…we have some of the most desirable first home buyer properties on the market. If you can see yourself living in Freshwater, Collaroy, Dee Why, Manly and beyond then you need to call us! 
STUNNING OFF THE PLAN APARTMENTS IN MANLY VALE!
Well we were kind of chuffed that we made it this far!
