The correction upwards isn’t yet clear. The market has just opened, and it seems that market leaders are steady, not moving much at all. Leading sales on the ASX have moved up in the 3-4% range.
The drastic drops of the last week have been a body blow to global investor confidence. Reduced interest rates have hit lender margins, which hasn’t helped borrowers nervously sitting on the sidelines.
Energy stocks are still vulnerable, thanks to oil and the Saudi-Russian spat of price cuts. As usual, the dependency on oil instantly impacts the economy, but it’s highly debatable whether lower prices are such a disaster in a generally gouging environment. According to The New York Times the oil price war could “bankrupt” smaller American producers, but lower fuel costs aren’t all that bad overall.
One reason for paying attention to the Australian stock market is that it is a large long-term investment market. The Australian market is highly index-sensitive for Australia’s huge multi-trillion dollar superannuation industry. The current mess is making a lot of portfolio managers wary. If this skeptical market goes up, it’s persuaded itself to buy in.
Understandable enough – Do you buy in, in such a sudden, mindlessly irrational situation? You might, if you have the capital, see opportunities and have a healthy risk margin. Looks like the old adage “the market always oversells” is in play at this stage, but you can’t blame investment managers for being cynical, while snapping up strategic stocks at better prices. There’s a 12% margin on the index prior to the falls, now, so that makes sense.
Anyway, watch this space. If the correction is genuine, and after the insane rout of the last week it’s about due, maybe the madness has peaked.
