The last two and a half years have been disappointing for most investors. The All Ordinaries Index of Australian shares is currently at the same level as in April 2021. Good dividends have been paid but prices are no higher. This has impacted most super accounts, managed funds and share portfolios.
The post-Covid recovery was strong but since then the Ukraine War, tensions in the Pacific and Taiwan, rising costs and inflation, energy shortages and surging interest rates have produced many market fluctuations.
November brought a good recovery after three down months. Yet shares are still well below their long-term trend. It’s time for a catchup.
It now appears that interest rates are at their peak in the US, and probably Europe. The British Government is stimulating its economy to prevent a recession. We all want to see a slowdown in spending and demand but avoid a recession.
In Australia we are at or very close to our rate peak. Wednesday’s inflation reading showed a half per cent fall from September to 4.9 per cent at the end of October. That may be enough for a rate pause until February.
Bargain hunters have already been busy in November. They are likely to gain more confidence after the December rate decision, whichever way it goes, with less uncertainty ahead. That could see shares rising over the next few months, lifting super and investment accounts again.
Some analysts expect a business slowdown and a decline in sales and company profits so that share prices remain weak. However most businesses are flexible and can adjust to deal with changing conditions.
Inflation should continue to fall. The shortages we saw during Covid are mostly gone with immediate delivery of goods available. That is bringing downward pressure on prices. However wages are still rising and productivity has declined due to work-from-home, adding to inflation.
Shares earn superior returns long-term and are due for a better period. Most companies are trading at reasonable prices relative to profits, and have relatively low borrowings so high interest rates aren’t a problem.
Businesses that benefit from inflation are yet to see that reflected in their share prices. Commercial property funds profit from rapidly rising rents but their prices are still low. Toll road operators and utilities companies can also raise their prices with inflation.
Experienced investors know it’s best to buy when prices are low. It doesn’t pay to be too pessimistic. Even if making the mortgage payments is a battle, it’s a good time to invest superannuation in shares and property for long-term growth.
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