Markets in Australia are expected to be buoyant this year with the Australian dollar up as much as 12% in value against the US dollar, but there is a price to pay.
The benchmark ASX 200 index of major Australian shares is expected to finish higher than last year, as is the S&P/ASX 200, while the ASX 400 will fall as much.
The market is also expected to expand further in the coming weeks as the Federal Reserve releases its new monetary policy statement, due in December, that will detail how much money it will be willing to lend to the economy.
There are some signs that markets are beginning to move higher after a long period of bearish moves in August, when stocks fell more than 20% in a month and the ASI stock index lost more than 6%.
The S&p/ASI 200, which tracks about 2,500 Australian companies, has been on a tear this year, up 10.3% since August.
It rose 10.2% in September.
“We are probably in the last months of this year that there will be some sort of recovery,” said Anthony Lezak, head of research at RBA Asset Management.
“But it is going to take a long time.”
There are several reasons for the optimism, according to Mr Lezik.
“There are two factors.
One is the fact that the government is trying to ramp up spending and infrastructure spending.
We are going to see a lot of investment, which is very good news for the economy,” he said.
The Reserve Bank has been trying to get more interest rate cuts from the Federal Government, while it has also boosted its bond buying program.
Mr Leizak believes that the Reserve Bank is likely to continue its policy of buying $US3.5 trillion worth of government bonds over the next 12 months. “
A lot of the government has been willing to listen and do some stimulus spending,” he added.
Mr Leizak believes that the Reserve Bank is likely to continue its policy of buying $US3.5 trillion worth of government bonds over the next 12 months.
It has said it will not buy more than $US1.5 billion a month for a while.
“It will be a long-term approach, but that is the way it is, and I think it is a sensible way to do it,” he predicted.
Mr Gee said that investors are likely to buy a greater share of the S &T market this year as the Reserve has stepped up its purchases of Treasury bonds and government debt.
“The Federal Reserve has been buying a lot more bonds in the first half of the year than it did at the beginning of the financial year,” he explained.
“And we are now seeing some very positive signs for the next couple of months.”
The S &s stock index, which covers about 4,500 companies, is currently trading at 4,082.08, up from 4,016.08 in August.
The ASX 100 index of smaller Australian shares, which includes some Australian companies with smaller markets, is up 1.2%.
“The market is starting to go up and down in the next few weeks, but I don’t think we are going anywhere,” said Mr Leazak.
“I think the market is heading towards another recovery and I don.t think we will see any further volatility.”
The markets have been buoyed by recent increases in the value of the Chinese yuan, which has increased by nearly 2% against the dollar since early September, after the Reserve announced it would raise interest rates by one percentage point in November.
“For a while there was a lot going on around China and the global economy and the yuan was being devalued by about 2%, which was pretty much the end of that,” said Michael Hennessey, head analyst at Sydney-based investment firm KPMG.
“Now the Chinese economy has been improving and there is more demand in China than ever before, so that has helped to make the yuan more attractive for foreign investors.”
But some investors are not buying in.
“This is a good time to get a hold of a good local stock because there are a lot to buy and the price is going up, but the risk of getting hit is going down,” said Craig Cocks, managing director of Cocks Investment Services.
“Investors should look to local shares and the US market as well, but also local Chinese companies.”
“I believe the Chinese will see a big rebound,” he told ABC Radio’s Victoria Today program.