What a big difference a couple of months can make. For most of the year, the market as a whole was not doing much, but then it received a kick start and moved to record highs. New highs always start to attract attention ? and this is what we are starting to see with many investors having been out of the equity market, starting to return again. The momentum looks set to continue for a while, but risks are rising everyday and it?s important to remain alert.

The local equity prices have enjoyed a strong re-rating over the last couple of months and indeed over the last 18 months, with the overall index moving up to a new high and through the 12 000 level for the first time ever.

The re-rating experienced over the last couple of months has generally however been broad based. I believe that this has been a function of investors switching from the lower return environment offered by fixed income to the relatively higher yielding equities.

It looks set to continue for a while, especially having gained a certain momentum. There is also evidence in this in the number of shares moving up relative to the number of shares moving down ? the so called advance decline ratio. This is a broader gauge of the market, not biased by large weighted shares (such as Anglos etc).

Will it continue? Can it continue?

By all accounts it does appear to be the case at least for the very short foreseeable future. Corporate earnings have generally been firm, and when combined with low interest rates, the ratings are not excessively expensive ? but definitely not cheap.

In my view, the overriding concern for local and most global markets has to be the ever increasing debt problem, which is escalating at an exponential level in the US. Being the largest financial market and by far the most widely followed, this is a continual niggling concern.

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Posted: 2004/10/08 16:48 View Archive

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