Share correction comingFrom: AAPBy Patrick LionApril 10, 2006...

Share correction coming
From: AAP
By Patrick Lion

April 10, 2006


MORE positive economic indicators are expected to push the share market to record highs again this week but economists are warning of a correction in the near future.
The main indices closed slightly down on Friday with the S&P/ASX 200 Index last week finishing at 5232.87 points and the All Ordinaries Index at 5186.55 points.

That represents a 100-point jump for the week, taking the rise of the market since the new year to about 10 per cent.

Economists say such a strong showing cannot last, but a correction may not happen just yet.

Surveys on business and consumer sentiment this week are expected to indicate continued confidence in the Australian economy.

"The market is due for a pause," said Shane Oliver, the chief economist at AMP Capital Investors.

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"However the broad trend is likely to remain up. Fair value for the ASX 200 is around 5600 so the market still has a fair way to go before it can be considered expensive."

CommSec chief equities economist Craig James said the market was overdue for a correction.

The rises so far had put the full-year gains at almost 40 per cent.

"While growth of that magnitude has occurred in the past, the last time being 1993, the gains have not proved to be sustainable," he said.

Valuations were not excessive at present, with the price-earnings ratio standing at 15.7 per cent, broadly in line with longer-term averages.

"But it is a lot harder to find real value in the sharemarket. In fact, of all the companies covered by CommSec, we currently have only 11 short-term buy recommendations.

"If the sharemarket rally continues at its current pace, clearly valuations will push into expensive territory, meaning that buy recommendations will be even harder to justify."

The rises this week are expected to come despite a weaker showing on Friday night on Wall Street, where key stocks fell as better than expected March job figures boosted the case for a further US interest rate rise.

The Dow Jones Index closed at 11,120.04 points, down 96.46 points previously.

Analysts expect local resource stocks to also be dampened by lower base metal prices overseas over the weekend.

However, investors should be encouraged by positive data this week, with the March National Australia Bank business survey and April Westpac consumer sentiment figures due for release before the market breaks for the Easter holiday period.

UBS Investment Research believes both "will remain at above-average levels, consistent with solid profit growth and the tight labour market".

But issues such as rising petrol prices and talk of an interest rate hike could weigh on consumers' minds.

CommSec's Mr James was not expecting drastic changes in economic feeling from either survey.

"Readings of business conditions and sentiment were both higher in March with confidence the strongest in a year," he said.