Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 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 finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete 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'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go Hmmm...one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Thursday, 20 March 2014

Share markets: risk and return?

Shares down a chunky 1.2% today, mainly due to offshore news, since there's not a lot happening in terms of local data this week.

With record low interest rates in Australia, share markets have been happy hunting grounds indeed for the last half decade or so.

Australia's XJO (the black line below) has not recovered in quite such a strong manner as the US market due to the composition of our index, but returns have nevertheless been very strong for some years now. 

Australian and World Share Price Indices graph

Although the various sectors of the market previously diverged, falling commodity prices have seen a pullback in resources stock valuations. 

The impact of the mining construction and commodities boom is clearly visible in the chart below, with resources stocks going a tremendously strong run from 2003. 

The financial crisis changed the outlook for mining companies adversely as commodity prices fell dramatically, before they staged something of a recovery.

Australian Share Price Indices graph

Time in the market, or timing...

Long-term investors who are focusing on increasing dividend streams will have little to fear from today's market, but what about those with a shorter time horizon?

There are a number of factors which pose an imminent risk to the market, including variously a potential slowdown in China's economic growth (and thus demand for commodities), geopolitical worries in Ukraine, and the US Federal Reserve apparently preparing to continue tapering back its stimulus measures as the unemployment rate falls. 

Of course, there are always possible causes of an imminent correction, but these seem to be some of the salient risks at present. 

That said, with interest rates stuck at just 2.50% for the foreseeable future, most forecasters expect share markets to be higher by the end of 2014.

Below is a clearer chart of the XJO's performance since 2004.



Source: ASX

In terms of prevailing market valuations, you'd be hard pressed to make much of a case for value based upon trailing price/earnings (P/E) ratios.

Trailing P/E Ratios graph

Average dividend yields in the Aussie market remain fair at a shade over 4%.

Dividend Yields graph

The market seems optimistic of improved future earnings, and therefore on a forward P/E basis, the market is presenting :a somewhat more appealing ratio in the mid-teens. 

Forward P/E Ratios graph

In summary, value in the market at present is at best fair.