Feb 02

ASX200 to go through 5000!!!

Perhaps haven’t been reading enough but I’ve just read my first article of the year with a fund manager suggesting huge returns for the Australian sharemarket…click here. Apparently the Platypus CIO believes the ASX200 ‘looks set to finish 2012 over the 5000 mark”.

At last check the ASX today was 4267 so ifit grows to 5000 by the end of the year that’s a capital gain for the remaining months of a little over 17%. Throw in a conservative dividend yield of 4% and that’s a 21% return!!! I love to hear the big calls

Sure, if the European and US economies look to be sorted and China’s issues are fine then 5000 is very do-able…I hope he’s right…but it is a big if and there’s a long way to go before we should be remotely confident of a 21% return this year so be very careful of what fund managers say…perhaps there may be conflicting reasons? 😉

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  1. BB

    Hmmm, maybe? It would seem that such a return would require a few key outcomes, basically in line with your thoughts but I’ll attempt to be specific

    1. A flow of positive US economic news that doesn’t just beat market expectations but also proves that this time it really is different.

    2. An EU bank liquidity and quasi capital injection so large that the market suddenly know deems EU financials as ‘solvent’ (or at least solvent enough to withstand the assets write downs to come) and;

    3.An ECB printing press funded sovereign bailout so large and/or an ‘EU agreement’ so unexpected that market participants are confident GFC v2 has been postponed for another few years.

    But does it really even matter? None of the above ‘solves’ anything and although temporary liquidity issues may dissipate and immediate solvency issues once again dodged, underlying economic growth & debt deleveraging issues will persist.
    Investing for the ‘long term’? 5-7 years? Well given current risk asset valuations, corporate earnings and margin levels (excluding maybe Euro stocks) probability/history suggests investors wont be holding onto those 21% returns for that long.

  2. AFundie

    Guys! Given that 9 months ago the ASX200 saw 5,000 it is not beyond the realms possibility. It probably doesn’t even need the issues in the US, Eurozone and China to be sorted to happen, all it needs to be a chance is that Greece is carried for the next 11 months, the ECB continues with quasi QE, the US creeps forwards and China continues to “manage” their slowdown – not a lot to ask for 🙂 It is an election year in the US too, 5,000 here we come hold on to your hats!

    1. michael

      Spoken like a true fundie! 🙂 5,000 is definitely in the realms of possibility, no doubt about it…so is 3,500. Not so sure about carrying Greece will help too much though as its an expensive exercise, but the QE measures will definitely help…handing over cheap money is always good for a few risky asset purchases

  3. BB

    Interesting indeed. I thought the market was trading at about 13x trailing earnings, with 12fwd PE expected to be around 11.5x (implying roughly 13% eps growth). Assuming the EPS materialises then an increase in the multiple to 13.5x 2012 trailing EPS P/E would be sufficient to reach the 5000 target. Now my numbers are as rough as they get but let’s face it, probably not all that more inaccurate than market EPS forecasts anyway, not does my use of such ratios suggest I take any notice of the return potential they apparently imply.

    No one is debating the math, nor should they be debating the shopping list of issues to be avoided/hidden/postponed or god forbid solved over the next 12 months to deliver that outcome. The point is…. who cares? “If we can avoid x, y and z for now”, is this really a solid foundation for long term portfolio returns? How about we talk to investors about potential long term return outcomes, based on an assessment of something other than arbitrary price targets, multiples, analyst growth forecasts and market averages. Not an item at the top of strategy & distribution’s to do list I’m sure 😉

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