News

In our ongoing efforts to keep you informed throughout these volatile times, we feel it is important to contact you.  We understand that this has been very unsettling for many of you, as you listen to daily media reports.

This is not permanent

Contrary to some media reports stating that there may not be an end to this, the truth is there will be an end.   As with all financial and other news events they are short term and not permanent.

You are not 100% invested in shares

Only in very rare cases will someone be 100% invested in shares.  This means that a fall in the sharemarket does not mean that your whole portfolio has fallen by the same amount.  There are assets in your portfolio that will be affected to a lesser extent and some that will not be affected at all.

What has caused these events?

• The US long term credit rating downgrade.
• The appalling conduct of the US Politicians in addressing the debt ceiling issue.
• The agreement on the debt ceiling issue was inadequate.
• European & US debt concerns.
• Concern that the austerity or debt reduction measures being taken around the world will lead us to a recession.

What happens if you sell out of your portfolio and go into alternatives such as a Term Deposit or Property?

• By selling out, you turn paper losses into real losses.
• You sell out of the markets at somewhere near the bottom.
• You miss out on the recovery in the markets.
• It will take you longer to recover your losses.
• The downside is that you could experience further temporary losses before making a full recovery.

Is it logical that leading, stable companies are worth significantly less than they were a few weeks ago?

To some extent there may be an argument, say commodities fall or if we were in recession, but the reality is that the majority of these businesses will continue to operate and do so profitably.  We are currently seeing many companies locally and around the world announce better than expected profit results.  In a normal market this would drive share prices higher.

Shares are cheap

Of course they can still get cheaper, but they are now getting back to 2009 levels.  The table below illustrates this point by using the price/earnings ratio.  This measures the number of years it takes for the company earnings (E) to repay the company share price (P).  A lower value indicates the share price or market is cheaper.

Source: Thomson Reuters, AMP Capital Investors

Can the sharemarket recover?

Yes and it will.  For example, from the previous low point in March 2009, the Australian sharemarket recovered 61% to April 2011.

There is more information available on our website and we will continue to post material under the news and media centre for your perusal.  Click Here to listen to a radio interview with the ABC that has further information.

As always we are available to help you.  Please feel free to contact us.