asx - last 100 years

THE VERY LONG TERM - TWENTIETH CENTURY

I was interested to receive, in September Shares magazine, an annotated chart of the Australian market 1900-2003, sponsored by ComSec.

What it shows is rather interesting.

Essentially, up until 1975 the Oz market followed a well-defined growth channel, with bottoms in 1902, 1931, 1942 and 1954, and tops in 1929 and the 1968-70 minerals boom. The bottom of that channel would currently be about 900 and the top about 2200.

In 1975 which was the worst year of the century for the Oz market, a false break was made to the downside followed by a five-wave impulse up to 1987. The top of the channel was hit again in the 1980 mineral boom, then in 1985 the market broke out to the upside of the channel where it has stayed ever since. This amounts to a complete re-rating of the Australian (and other) stock markets. It is by no means clear to me that this re-rating was justified by fundamentals. It appears to me to be more a result of diminution of the stock market risk factor than of any fundamental revision of Australian or world economic chances, since the period since 1975 has been typified by low growth worldwide.

Since 1985 the market has run along the top of the old channel, hitting it in 1990 and 1994. The picture since 1987 has actually been more of a running correction rather than the Great Bull impulse we have been led to believe. The pullback from 2001 should hit the old channel again before too long (2200 area).

One must wonder however if that original 1985-87 rerating was justified, and whether the market could eventually fall back into the old channel, bottoming round 1000.