Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Potential for more volatility

10.33 AEDT, Monday 25 February 2013

Potential for more volatility
By Ric Spooner (Chief Market Analyst, CMC Markets)

The rally in the Australian market since last November has been remarkable for its orderly progression and low volatility. However, investors are starting the new week conscious of the increasing risks that this behaviour pattern may change. Last Thursday’s high turnover, 2% decline provides an insight into the market’s potential for a sharp decline. There is now more potential for significant market moves in either direction.

The rally since November has been more about adjusting valuations to a lower risk; lower interest environment than improved earnings outlooks. The forward PE on the S&P/ASX 200 index has risen to about 15.25. Given the low yields on fixed interest investments, this is by no means an unreasonable multiple. On that basis there remains plenty of scope for market valuations to move even higher.

However, the forward PE is now well above the long term average. Thursday’s decline provides an insight into the scope for a sharp pullback if there is any change to the consensus outlook for a low rate; low risk environment.

The Italian election result and the outcome of Congressional negotiations on the automatic US budget cuts are the major risk events for this week. Both have the potential to influence consensus attitudes toward global risk. Australian markets are likely to remain relatively cautious before these events.

From a technical perspective, we begin the week with the uptrend intact. Thursday’s big drop was not enough to take us below the zone of support around the trend line that has defined the rally since November. Any break below the zone of support around 4973/4951 could indicate that a correction to this uptrend may finally be underway. This support is made up of the 20 day moving average and the early February peak. Last week’s high at 5106 represents initial, minor resistance.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Welcome Home: Record High Migration Stokes 41-Year High Population Growth

New Zealand annual net migration hit a new high in October as more people arrived from than departed for Australia for the first time in more than 20 years. More>>


Citizens' Advice Bureau: Report Shows Desperate Housing Situation Throughout NZ

CAB's in-depth analysis of over 2000 client enquiries about emergency accommodation shows vulnerable families, pregnant women and children living in cars and garages, even after seeking assistance from the Ministry of Social Development and Housing New Zealand. More>>


Speaking For The Bees: Greens Call For Neonicotinoid Pesticide Ban

The National Government should ban the use of controversial pesticides called neonicotinoids after evidence has revealed that even at low doses they cause harm to bee populations, the Green Party said today. More>>


Science Awards: NZAS Celebrate NZ Scientific Achievements

The Marsden Medal is awarded for a lifetime of outstanding service to the cause or profession of science, in recognition of service rendered to the cause or profession of science in the widest connotation of the phrase. This year’s medal is awarded to Dr Mike Andrews. More>>


Court Rules: Affco 'Unlawfully' Locked Out Meat Workers

The note says the full court found for the plaintiffs, "that is that the defendant locked out the second plaintiffs unlawfully and that it breached s 32 of the Act by acting otherwise than in good faith towards the plaintiffs while collective bargaining was still going on." More>>


New Bill Introduced: GST On Online Services

These measures are an important first step in the Government’s efforts to deal with increasing volumes of online services and other intangibles purchased from overseas suppliers that should, under New Zealand’s tax rules, be subject to GST. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news