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Rising prices attract nervous investors

10.04 AEDT, Tuesday 20 November 2012

Rising prices attract nervous investors

By Ric Spooner (Chief Market Analyst, CMC Markets)

Major rallies in world equity markets last night represented one of those self-generating situations where rising prices themselves attract new buyers to the market. While there was not much news to trigger the rally, there are a lot of nervous investors who are underweight equities and other risk assets. Investors in this situation are very conscious of the positive event risk represented by a good outcome on the fiscal situation and the Greek government being successfully funded. In this situation, rising prices themselves attract investors nervous about missing out on a major rally.

The Australian market may underperform the US markets today. This reflects the fact that our market has not fallen as sharply as the US markets recently. The S&P 500 index has retraced around 62% of the June to September rally compared to 40% for the ASX 200. The US technology sector was one of the main contributors to last night’s rally with Apple climbing 7% after dropping 24% from its peak. This sector has only a very small representation in our leading index and could limit the size of the local rally compared to the US.

News that Moody’s has followed S&P in downgrading Frances’ credit rating may temper the risk on mood in early trading. With public debt at over 90% of GDP, France is vulnerable to any significant increase in borrowing costs and the market is sensitive to its potential as a long term problem for the Eurozone.

Energy stocks may be among the better performing local stocks today following the overnight jump in oil prices and in light of Shell’s announcement of a review of its Arrow coal seam gas project. This includes the possibility of combining it with one or more of the existing LNG plants currently under construction.

© Scoop Media

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