SHARES

The ASX200 has finally hit 7000 points but what does this mean for you?

By

The S&P/ASX 200 recently hit a new high of 7000 points. It's a big milestone. You will recall it hovered around 6000 for a long time - first hitting that milestone in early 2007 and then finally breaching it again in November 2017.

And for the past six days the market has reached new highs - today it broke through 7100.

"The 7000-point milestone was a psychological hurdle, when we soared above it the market entered unprecedented record territory," says Bell Direct market analyst Jessica Amir.

"Based on history and the charts, we will continue to see record highs until we see pullback. There are a number of global issues hanging in the dark, from the US presidential election which is a bit of a grey cloud, to the middle-east tensions, to phase two of the trade deal with China, plus we have our reporting season as well with results expected to be muted from the drought and bushfires," says Amir.

asx australian sharemarket sectors election

Powered by surges in technology, consumer, real estate and financial stocks, the market has gained more than 6% since the beginning of the year.

For some, this high looks unsustainable and may spook some investors into taking the profits to rebalance.

Why investors are focused on equities

Investors are continuing to search for yield because we have record low interest rates and the inability to earn good rates without turning to equities.

"For Australians, we're bracing for two more interest rate cuts which will take us to record low rates that have never been seen before," says Amir.

"So the hunt for yield is on. Each time the RBA cuts rates, older Australians are forced to take more risk, when they've traditionally used term deposits and fixed interest."

Amir says investors are also using ETFs to gain access to the market and there are three main areas that are most popular:

  1. Aussie equities ETFs
  2. ETFs that track the top 500 US companies
  3. Fixed interest ETFs

What investors should do now

Quantum Financial adviser Christine Fenech says the S&P/ASX 200 hitting 7000 is positive news for investor confidence.

"Most portfolios should have enjoyed material gains, especially in 2019 with the US and Australian markets both up," she says.

And while this is good news, Fenech says watching market headlines in the media on a daily basis can make it incredibly confusing for investors to stay on course.

"You can end up chopping and changing out of fear or even just holding your wealth in cash and completely missing out," she says.

"Investors should plan to regularly review and rebalance your portfolio at set times, regardless of market conditions. If you do make investing decisions outside these planned rebalances, they should be limited and well thought through.  Consider your long-term goals, views about markets for the next six to 12 months, cash requirements and appetite for risk."

Fenech says investors should try not to let fear and greed drive investment decisions.

"When shares are up, it feels far easier to buy. When shares are down, we're more inclined to sell. But that's the exact opposite of what we should be doing. So keep a focus on your appetite to risk and your target asset allocation."

Looking ahead

Fidelity International cross-asset specialist Anthony Doyle says his ASX forecast at the beginning of the year was 10%, including income and dividends, and now we've hit 6% on price alone.

Doyle says while he remains optimistic the equities market will likely prove volatile this year.

"Importantly, the dividend yield on Australian and international equities looks particularly attractive relative to other asset classes, like cash and fixed income," he says.

According to Amir, if you look at the trend lines, all are in high territory. No resistance has been noted to stop the index potentially reaching 7400 later in the year, or even before midway through the year, if the current buying frenzy lasts.

"We're seeing more buys than the same time last year," she says.

However, this comes with a warning.

"Investors should be careful, there will probably be a pullback at some time and investors need to take heed. Having a diversified portfolio to include fixed interest and property and cash is important as the pullback won't look as shiny as 7400," Amir says.

RELATED STORIES

Julia Newbould is a financial writer and commentator with a background in journalism. She was previously editor of Financial Planning and Super Review magazines; managing editor at InvestorInfo and at Morningstar Australia. Julia co-authored The Joy of Money, a book on women and personal finance, which will be out in April. She holds a Bachelor of Economics from the University of Sydney where she serves on the alumni council.
Post a comment
Link to something SoxQiKQB