Michael Gable, a private client adviser at Novus Capital, believes that we currently have the right combination of circumstances to see an improvement on the share market.
Although there is heavy volatility in Australia's mining sector – which has driven our economy over the last decade – the US economy is strengthening, concerns regarding the European debt crisis are subsiding and interest and currency rates are dropping around the globe. We can expect the share market to benefit from these combined forces, as investors look for more attractive returns than those offered in term deposits.
Gable believes that by the end of the calendar year, the benchmark index will be trading higher than its current levels. This will likely be driven by defensive high yielding stocks, such as the big four banks, Telstra (ASX: TLS) or perhaps property giant Westfield (ASX: WDC). However, in the short term he is anticipating the risk to be on the downside as investors get nervous due to the gains already realised.
Whilst the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) rallied nearly 10% from its low levels in June, it has since retracted some of those gains – particularly with the US Federal Reserve hinting that it could begin tapering off its bond buying program as early as next month. A small drop off on the market at the end of a rally is usually a sign that the market is getting nervous.
Whilst weakness on the market is a likely scenario in the coming weeks, investors should view this as an excellent opportunity to buy quality companies that they believe will outperform the market in the long term, or to reposition their holdings should they find more promising alternatives.
Foolish takeaway
Analysts have recently suggested that the benchmark index could climb as high as 6,000 points in the next 12-18 months, whilst others have put a slightly less optimistic target range – such as 5,500 points by the middle of next year. Nonetheless, it is a common belief that the index will continue to climb, and investors in it for the long-term should reap the benefits.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
