MARKETS SPECTATOR: Banks and Telstra weigh

Fund managers say profit taking is likely in the stocks that have made some of the biggest gains.

The banks and Telstra could face further profit taking amid widespread perceptions the time to take money off the table with regard to the Australian market is now amid sliding business confidence and a weaker Australian dollar, some traders and fund mangers say.

“There is a concern yield plays have been bidded up” past their fundamental valuations, Aberdeen Asset Management managing director Brett Jollie describes it. “There is a re-alignment in the Australian dollar which we think is overdue given the deterioration in the terms of trade that happened some time ago”.

The S&P/ASX200 Finance Index has gained 37 per cent in the last 12 months and is trading at a PE of 15.77, according to Bloomberg data. Telstra has surged 38 per cent and is trading at an estimated PE of 16.02. 

Analysts say the S&P/ASX200 Index is trading at about 14.4 times, around its 20-year average PE.

Meanwhile, individual investors, who could provide some support for the market, are continuing to let their money garner interest at banks by investing in term deposits. Jollie says retail investor in markets and fund managers appears to be low, not good news for market bulls who have seen foreign fund managers take profits.

Still, Jollie is “not sure” that foreign institutional investors have begun to rotate their stock portfolio out of Australia and into other markets. But he acknowledges the sliding Australian dollar and concerns about the health of the economy following the planned Ford pull out from Australian shores announced last week, is not helping the market reach new highs.