Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

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Saturday, 7 January 2012

Are Aussie stocks cheap at the moment?

Anyone who has invested in Aussie stocks over the past few years would tell you that it had been a frustrating experience.  The market tends to underperform, or so it seems.
But is that really true? Well, yes it is – the Aussie market has underperformed the global equity markets for some six years now.
Price to earnings ratios (price per share/earnings per share) are still hovering in the high single digits for a lot of the finest companies.  The historical average for Australian stocks has been around 15, so you might say that stocks are selling for a third off at the moment as compared to historical averages. 
There is certainly much more value to be found here than the US, for example, although PE ratios do have inherent limitations - for example, they are based on historic profits and 'old' information, and they don't take in to account non-recurring accounting/book entries.
Why so cheap?
One trend I have definitely noticed is that with Australia being ahead in the time zones, Monday trading is often totally directionless.  The market lacks a spine of its own and without a cue to take from the American markets, it seems to fall or trade very thinly every Monday, which is enormously frustrating.
However, that wouldn’t explain a long-term underperformance.
I think the real reason for the cheap prices is the strength of the Aussie dollar.  A  significant chunk of Australian shares are held by foreign investors and with the AUD riding so high, it just doesn’t seem to be an attractive market right now.
The Australian dollar is still stronger than the US dollar and against the Euro it tipped an all-time high yesterday. The British pund only buys 150 Aussie cents as compared to around double that a decade ago.
Of course, with interest rates still over 4% the fixed interest products are still seeing plenty of action, but not so much the share market.
This may change if rates drop further in February, but most analysts seem to agree that interest rates won’t fall too much further in this cycle so it could be a long slow recovery for Aussie shares.