A strategy to note?
July 27th 2006 13:58
Even an associate director from Macquarie Equities was scratching her head over the Thursday market rebound lead by banks to a positive territory of 1.5% for the ASX S&P 200 benchmark index.
See the movement heading upwards? Beautiful isn't? puts a smile on every faces aint it (if one does participate in the market)
Now, even a director of an equity firm is puzzle at the movements. Why? probably the movement was unusual. Are we seeing some new opportunities here? Lets analyse it.
The market yesterday dropped quite a bit after inflation data from the June quarter released by the Australian Bureau of Statistics showed a real hike. Furthermore, sources revealed that the RBA own inflation yardstick produced similar result, and from then on, an interest rate hike is almost imminent that can very well affect millions of Australians with mortgages and possibly adding billions more into the banks' coffers. Yet the banks lead the downfall of the market. The reason being demand for mortgages and loans will fall. Then why the Thursday market rebound was lead by banks again?
The reason could be several and the most likely being:
1) bargain opportunity to cash in on banking stocks.
2) rate hikes mean higher loan repayments by mortgagors and debtors.
3) earnings season approaching; maybe banks are expected to report superior earnings.
If reasons 1 and 2 hold ground, then, this would mean a new short or medium term equity strategy to capitalise on, given that situations in the future are similar. However in the long run, the strategy would probably lose its steam as the economy would already be badly punctured if the inflationary pressure goes unchecked.
Well, the writer could be wrong and would very much appreciate comments, discussions or may even prove the analysis wrong.
Up! Up! and Away!
See the movement heading upwards? Beautiful isn't? puts a smile on every faces aint it (if one does participate in the market)
Now, even a director of an equity firm is puzzle at the movements. Why? probably the movement was unusual. Are we seeing some new opportunities here? Lets analyse it.
The market yesterday dropped quite a bit after inflation data from the June quarter released by the Australian Bureau of Statistics showed a real hike. Furthermore, sources revealed that the RBA own inflation yardstick produced similar result, and from then on, an interest rate hike is almost imminent that can very well affect millions of Australians with mortgages and possibly adding billions more into the banks' coffers. Yet the banks lead the downfall of the market. The reason being demand for mortgages and loans will fall. Then why the Thursday market rebound was lead by banks again?
The reason could be several and the most likely being:
1) bargain opportunity to cash in on banking stocks.
2) rate hikes mean higher loan repayments by mortgagors and debtors.
3) earnings season approaching; maybe banks are expected to report superior earnings.
If reasons 1 and 2 hold ground, then, this would mean a new short or medium term equity strategy to capitalise on, given that situations in the future are similar. However in the long run, the strategy would probably lose its steam as the economy would already be badly punctured if the inflationary pressure goes unchecked.
Well, the writer could be wrong and would very much appreciate comments, discussions or may even prove the analysis wrong.
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