Selling overdone amid doom:
Kevin Andrusiak | January 22, 2008
HOLD tight and wait for signs of a rally after the Australian share market again showed it was all one-way traffic at the moment, in the worst yearly start to trading in decades.
Most of the gloom on the market yesterday was due to a high number of margin calls to leveraged investors who needed to quickly sell stocks to meet financial obligations, according to ABN AMRO head of Sydney sales trading Justin Gallagher.
"There's no justification for our market to be down 2.9 per cent today," he said.
"It's likely this margin call activity will take a couple of days to flush out. My view is that the selling has been overdone.
"Hold tight - the value will come through but we need a clearer picture of what shape the US economy is in.
"Last year it was a case of investors buying the dips. But the pain felt over the past couple of weeks means everyone is now waiting for the rally."
The All Ordinaries Index, which closed down 168.5 points to 5630.9, has already plunged 11.2 per cent in less than three weeks.
No one sector managed to evade the savage selling, with mining, financial and energy stocks hit hardest.
Russell Investment Group investment strategist Andrew Pease predicts that Australian equities will rebound throughout the year and return "high single-digit to low double-digit returns" for the trading year.
Mr Pease based this on the never-ending flow of superannuation into the Australian share market, which he said would boost equity market demand by a cool $30 billion during the year.
Leading indices returned 17 per cent in 2007, the fifth consecutive year of double-digit growth as part of a record run on the market that began with the US invasion of Iraq in March 2003 and was spurred on by the resources boom.
Discipline and patience would be rewarded, Mr Pease said, despite admitting that the golden period of outperformance on the domestic market was seemingly coming to a close.
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