Investors smile as markets bounce back

On Friday 6 March 2009, the Australian All Ords, the barometer of the share market, reached 3,112 points. From the peak of 1 November 2007 of 6,853 points, the share market had fallen 3,741 points, losing almost 55% in value. One could smell the fear in the air: banks around the world were being nationalised, and headlines screamed ‘bottomless pit’, about the depths to which the markets had fallen. There was talk of massive unemployment in Australia. Talkback radio was filled with anecdotes of companies offering staff retrenchment packages or voluntary pro-rata decrease in pay and work hours so that business could continue operating. Governments around the world were working overtime to stimulate the economy by cash hand outs to the public while publicly declaring their confidence in the banking system. Even Prime Minister Rudd put cheques in the mail while his team was busy talking up the economy.

Almost a year on, the markets seem to have turned the corner. Twelve months on, the markets have recovered to about 4,600 points - an increase of about 40% from the lowest point. Those who were able to ride out this storm and keep their discipline, would have seen their share portfolios gain a healthy amount. Those who gave in to shock and horror stories and sold out their investments at the bottom, would have managed to secure returns of just around 5% in a bank deposit. For those brave souls who actually went into the market

BY PAWAN LUTHRA

post March 2009, this would have been a year of healthy returns.

To an extent we are all affected by the markets, as most Indian Australians have shares through their superannuation statement. With the mandatory 9% of their wages being directed towards superannuation, most default funds will have monies invested in part in the Australian share market. Perhaps when they get their statements for this year, there will be a smile on their lips rather than a frown on their faces.

Going forward, it seems that Australia is well positioned to grow in the next few years. With China and India at one’s doorstep, it seems that the lucky country which once rode the sheep’s back to its fortune now has to unearth the treasures which lie beneath our feet to discover new fortunes. So far, the government has managed the economy well. Its gross public debt, as a percentage of its GDP is 15.9% for 2009, as compared to 114.9% for Greece, 71% for the United Kingdom and 84.7% for India. China sits at 20.2%. Australia is the only country in the world which actually increased interest rates late last year, inflation being the main worry for the government.

By the same token, India is in a difficult position. While the economy is expected to grow at 8%, inflation is also high with the common man finding the daily needs to be a lot more expensive. As a result, it will be difficult for India to tinker with its interest rates while managing the economy. The pundits are puzzled as to why, when the Congress Party is in power, do the prices increase sharply.

Australia however is currently in flux, caught in the grips of two large global economies. It is well known that when the US sneezes, Australia catches the cold. However, with its proximity to China and Australia’s economic future dependent on Chinese demand, we are also susceptible to the movements in the Chinese economic policy. Over the past few weeks, as China has reigned in public spending, Australia has suffered a dip in its markets. So, between an American cold and a Chinese squeeze, it will take time for the Australian economy to align itself correctly.

Meanwhile it will be impossible for both China and India to stop their momentum for growth. Australia will ride their coat tails albeit suffering from a cold.