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Australian share market has finally beaten its record high set almost 12 years ago

July 31, 2019

July 31, 2019

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Australian share market has finally beaten its record high set almost 12 years ago

On Tuesday, 30th July, the Australian share market hit its highest level ever, surpassing a record set just before the global financial crisis. It took almost 12 years for the index to get back to this level surpassing the previous all-time high set in 2007.

On Tuesday, 30th July, the Australian share market hit its highest level ever, surpassing a record set just before the global financial crisis. It took almost 12 years for the index to get back to this level surpassing the previous all-time high set in 2007.

The S&P/ASX200 index has traded as high as 6,875.5 in early trade which has surpassed its highest record of intraday trading of 6,851.5, set on November 1, 2007. The ASX 200 index also closed on Tuesday up 19.3 points, (0.28 per cent), to 6,845.1 also being the highest close ever. The broader All Ordinaries was up 16.9 points (0.24 per cent) to 6,928.3. Although the market lost some momentum in the afternoon, the benchmark index which contains all the largest 200 companies in the Australian market still set closing highs.

Chris Weston, head of research in Pepperstone said that ultra-low interest rates resulted in pusing bond prices down. This resulted into investors looking for yield to turn to shares. “There is no alternative, you have to be involved in equity, the market is telling you that time and time again.” 

Furthermore, overseas investors and momentum traders are particularly attracted because of the weak Australian dollar and the high yields of the Aussie market. This has led to the Australian share market being amongst the best-performing in the developed world. “The ASX200 is your Zeus of a market,” Mr Weston said.

Iron ore companies have played a significant role in driving the Australian market’s gains on Tuesday which was up 0.6 per cent, with BHP up 0.6 per cent, Rio Tinto up 0.2 per cent and Fortescue Metals up 0.9 per cent – all posting increases. The biggest gainers on Tuesday were Telecom and utilities which were both up more than one per cent; on the other hand, tech and consumer discretionary stocks posted losses. The big banks were also up with Westpac on the lead, jumping one per cent to its highest level in almost a year.

The Aussie market has gone to record highs because investors are “looking through short-term uncertainties around the economy and focusing on lower interest rates”, AMP Capital’s chief economist Shane Oliver said. He also said that the market was getting a big push from “high iron ore prices boosting mining companies” and a “positive global lead” – with Wall Street in particular which has consistently closed at record highs the past few weeks.

One of the main factors that drove market gains is the expectation that the US Federal Reserve will cut interest rates on Thursday at 4:00am (AEST). This fall in interest rates will ultimately result in lower funding costs for Australia’s lenders, particularly the big four banks. Another exciting headline that the market is closely watching is the US-China trade discussions taking place in Shanghai this week. Although there is minimal expectations for a breakthrough, investors are optimistic that both sides can agree to some “goodwill” gestures, or at least prevent any further escalation or tariffs.

Although the local market has just gone through a record-breaking season, Dr. Oliver warns that the market might still be “vulnerable to a short-term correction”. The coming reporting season could result in volatility, and there are numerous risks in relation to trade wars, tensions with Iran and soft economic data. But despite that, he still believes that the local share market will continue to rise in the next 6 to 12 months. He said this was due to “the combination of low bond yields, which means that the share market is comparatively cheap”, “monetary easing by the RBA and other central banks” and “a likely pick up in global growth by year end and Australian growth next year”. But as traders we continue to take bullish bets on our quant tested systems and continue to produce almost exclusively bullish or sideways trades.

 

*Accurate time of writing – 3pm AEST on the 31st of July, 2019.

 

 


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