Hudson report - is it bottom - or merely business

1. Poor performance provides buying opportunities

The Australian share market suffered its worst performance in 14 years in the financial year ending June 30, 2002. The market fell 8 per cent, which was the biggest fall since the stock market crash in 1987.

This was a significant turnaround from the more than 5 per cent rise we saw in 2001, and barely even a memory for stock market investors was the 14 per cent gain in 2000.

On the bright side is the relative performance of the Australian market compared to our international peers. Our market held up comparably well due to the heavy weighting in defensive sectors.

The banking industry, which accounts for more than a quarter of our market, was the main beneficiary of nervous investors’ funds, along with the property trust and gold sectors. These three sectors returned double-digit growth for the year.

Australia’s strong economy in the face of a synchronised global slowdown saw our share market trading at record levels up until the last quarter of the financial year.

Eventually the unwinding of Wall Street’s lengthy bull market finally took its toll on investor confidence, with the Australian market coming down to current trading levels.

The synchronised slowdown is best reflected in the global MSCI World index, which dropped 16.5 per cent. This was led down by Britain’s FTSE which fell 17.5 per cent, Germany’s 27.7 per cent drop and the US Dow Jones’ fall of approximately 12 per cent.

Economic prospects are improving both in Europe and in the US, however confidence is at low levels. The threat to any recovery in their share markets in the short term is from further unrest in the Middle East, the potential for another terrorist attack and the fear of more accounting scandals arising in the US.

International markets were already on a downward spiral prior to September 11, however this has strung out the downturn along with the recent questioning of the credibility of US accounting standards.

From an investor’s point of view the downturn in the global share market should be seen as an opportunity. We believe that share markets have over-corrected and cheap Australian and international stocks are now plentiful.

Whilst the timing of the recovery is not certain, Hudson is of the opinion that it will be in the short to medium term; i.e. in the next 3 to 18 months.

If you have a long-term outlook then buying in now will ensure entry into the market at low prices. It may not be the very bottom of the market but no one knows where that will be.

As an investor your goal should be to buy low and sell high, not buy at the very bottom and sell at the very top, this is impossible.

Your adviser can help you determine the best way for you to take advantage of the opportunities that are available, so book a review NOW!

We can assess your current position as well as your goals and risk profile to develop an investment plan tailored to your individual situation.

Book your appointment by calling us on 1800 804 296 or go to our website http://www.hudson-institute.com and follow the link in the red box.