|Summary: Lower interest rates are underpinning a steady flow of cash into the market while price earnings ratios remain close to historical averages. Against this backdrop some well-known companies are looking cheap.|
|Key take-out: Any short-term pullback would be an opportunity to accumulate on positions or initiate new ones.|
|Key beneficiaries: General investors. Category: Shares.|
The main technical message is that our market has grinded higher, reaching the resistance zone between 5,200 and 5,250.
It’s been money flowing into the market that has helped. Momentum remains bullish. A break above 5,250 would be a very positive and bullish sign. Technical indicators aren’t exactly pointing to any short-term retraction. Although, as we know with financial markets, this can change rather soon.
If a short-term pullback does eventuate, it would be a great opportunity to accumulate on positions or initiate new ones. Looking at economic data in the past, low interest rate environments tend to fuel bull markets.
What do the fundamentals say?
Fundamentally speaking, the market is trading right on its historical PE ratio, which I guess is why so many people are sitting on the fence.
No reason to sell, apart from taking profits, yet no reason to buy either – not cheap enough. I must stress that historically, low cash rate environments do support equity markets and there is still a heap of cash sitting on the sidelines. I get the question a lot: has Telstra and Commonwealth Bank run their races? My answer is, if the market begins to think that interest rates are going up, that's when you should be selling.
It appears, according to a few economists, that we might even see another rate cut this year. Inflation doesn't seem to be a worry at all.
Where is the Value? Large Cap Numbers
Below are the cheapest large cap stocks listed on the market. Cheap doesn’t necessarily mean they are a buy. Although it is worth mentioning there are some quality names on those lists.
This is an extract from the newsletter Premiership Portfolio by Sam Fimis of Paterson Securities available here www.premiershipportfolio.com/.