Rally tipped to spill into 2010
Sydney Morning Herald
Thursday December 31, 2009
THE sharemarket is within a whisker of a fresh 2009 record as the year draws to an end, after a mighty rally that has lifted stock prices 56 per cent from their March lows.Yesterday the All Ordinaries index closed at 4847 points after a 0.2 per cent fall broke a four-day winning streak, but the index remains just below this year's high of 4862.5 struck in October.Shares have now risen 32 per cent in the past year, the strongest annual rise in 16 years.And while the rally has provided a welcome boost to consumer confidence, and super balances, investors face one big question: can shares continue their gains in 2010?Bob Van Munster, the head of equities at Tyndall, said share prices were trading at a price-earnings ratio of 16 times, compared with the average historical ratio of about 14. This means investors are counting on a lift in corporate earnings."The market's expecting an earnings rebound, and we need to see signs of that coming through before the market gets much stronger," Mr Van Munster said.The first six months of 2010 would be tough for company earnings, Mr Van Munster said, and analysts were expecting improvements soon after and a 30 per cent lift in profitability between now and June 2011.But the strong recovery in the economy has also led to more bullish forecasts. CommSec's chief equities economist, Craig James, tipped the All Ords to rise 15 per cent to 5600 next year, thanks to falling unemployment and stronger growth.For this to occur, analysts say the private sector must once again stand on its own feet after benefiting from extensive government support in the financial crisis.The head of investment markets research at Colonial First State, Stephen Halmarick, said he expected share prices to keep rising but it would be a rougher ride than 2009.After Government hand-outs supported consumer spending, corporate Australia faces rising interest rates and lower disposable income."Now the onus for the economy and for company profits will be to achieve what the market's got priced in," Mr Halmarick said. "The government and the Reserve Bank will be looking for private sector consumption and investment to be the major source of growth."In 2010, the big winners from stronger domestic growth could be "cyclical" stocks with heavy exposure to the state of the economy, such as building materials and media.Market report€” Page 20
© 2009 Sydney Morning Herald