Measurements of economic performance have been distorted and will continue to do so for the next few months according to Rothschild Australian equities associate director Stuart Dodd.
“Economic statistics can be compared with those of past years but not with past conditions. An example is the construction sector last year was being fuelled by pre-GST work while the third and fourth quarters of last year were bolstered by the Olympics,” Dodd says.
Volatility has also been masked according to Dodd who says it is being driven partly by a decrease in floats and initial public offerings (IPOs).
“There has been no new floats since Telstra2 and IPO’s normally account for five per cent of market growth, but this has dropped to two per cent and falling,” Dodd says.
“This is driving a return to capital with companies engaging in buybacks and returning to strong cash positions which is driving short termism. This is leading onto volatility.”
However this volatility is not easy to spot at the headline level but when taken at a stock level it becomes more obvious.
According to Dodd in the ASX 100 during 2000 there where, on average, 39 times per month when stocks finished 25 per cent above or below the benchmark.
The average for the 10 years prior to that had been only 17 events per month on average.
At the same time Dodd says other data conflicts with this picture with employment figures remaining solid and retail spending still increasing, even after the GST.
He says as a result of this investors should avoid relying on themes occurring in the economy and concentrate on valuations of investments going forward.
“This is something we are trying to achieve as a fund manager. We are aiming for outperformance of the ASX300 by two per cent per annum and not relying on a few key areas alone,” Dodd says.
“There will not be a portfolio of fashionable stocks.”
