New market highs still years away

Equity markets might retreat in 2010 as interest rates rise globally, while the Australian share market would be unlikely to hit new highs until 2012, according to Wilson Asset Management (WAM).

An investment update from the manager said while it believes the share market would continue to move higher into the new calendar year, “as we move deeper into 2010 the picture becomes cloudier”.

“In the longer term, we would anticipate that share prices would level out in 2011 or possibly 2012 before starting a much longer and sustainable recovery,” the group’s statement to the Australian Securities Exchange said.

“History tells us that share markets take between five and seven years before they reach a new high. If we believe that November 2007 was a multi-year high, this would mean late 2012 is the earliest we could be anticipate hitting an all-time high on the Australian market,” the group said.

WAM argued stock selection would become increasingly important in coming months as market leadership narrowed to a handful of sectors.

The manager pointed to the relative weakness of banking stocks in November, with investors shifting away from what had become a relatively expensive sector. The industrial sector was also relatively weak, while resource stocks surged.