Share market won't recover in 2010

Assuming the share market will recover in 2010 is a mistake, according to the portfolio manager of Bennelong Funds Management Security Global Investors, David Whittall.

Speaking at a media briefing on the state of the US investment markets, Whittall said the rally that was occurring would be "punctured" by more bad news, and a defensive portfolio was still needed.

The health of the US and Chinese banks would have the greatest impact on the share market, Whittall said. US and Chinese banks hold $1.3 trillion each in share market capitalisation.

The loan portfolios of the US and Chinese banks were still concentrated in the manufacturing and mortgage markets respectively, and these sectors are still vulnerable, Whittall said.

Whittall said unemployment would rise to 12 per cent, and even as high as 15 per cent in the future, and this would cause mortgage defaults to rise to 16 per cent of total mortgages, putting even more pressure on US banks. As US unemployment rises, bank provisioning for loan losses would accelerate, he said.

The ratio of workers producing goods for the housing construction market would also fall in the future. Nearly a third of goods-producing workers in the US labour market were involved in housing construction, and that was not a sustainable balance, Whittall said.

As housing construction falls, the need for manufactured goods from China would also drop, putting pressure on the Chinese banks that financed goods production for the housing construction market.