The party’s over

Leading Australian and international financial analysts have stated that investors should not expect the recent market rebound to last.

Speaking at the Reuters-Pacific Prospect Investment Strategies Panel, Dawnay Day Brokers chief executive officer Ian Morley said the time for high growth was over, with the sub-prime problem being far more significant than many analysts were predicting.

“The current situation is much like a party at four o’clock in the morning. Someone discovers another bottle of champagne, so you carry on partying despite knowing that the party is over — and the party is well and truly over.”

Australian Wealth Management head of asset management Justin McLaughlin supported this view and said the coming years would be about capital preservation for his clients.

“You’re now looking at a possible recession in the US, major inflation problems in China and equity markets which have been living off this cheap capital.

“Our advice to clients is that 2008 is about preserving capital, not about growing capital. You’ve had four years of opportunity to grow your capital at a tremendous pace, and I think you’d be naïve to think it would go on forever,” McLaughlin said.

“That said, when sophisticated markets dislocate smart managers can make money. So there are going to be opportunities, but, overall, there’s going to be much more destruction of wealth than creation of wealth,” Morley said.

Contradicting this prediction, Calliva Wealth director of investments Brian Ingham said he was more optimistic looking forward, which has resulted in Calliva’s portfolio being “mildly overweight in domestic and international shares”.

“Fundamentally, our view is that we believe earnings in the mid to long-term will drive market outcomes. Particularly in Australia, we still see very robust outcomes for the next couple years,” he said.

“There have been a fair number of crises in financial markets over the years and while what we’re seeing with the US sub-prime market is certainly an issue that will cause ructions and a slowdown, I don’t think it will cause chaos.

“As far as we’re concerned, bear markets don’t start when price earnings multiples are at around 18 and dividend yields are close to 4.1 per cent. In effect, we continue to see that there will be opportunities within the Australian market.”