Market cycles less volatile – Stammer

With investment cycles in Australia having become milder, Praemium chairman Don Stammer believes the chance of the stock market dramatically crashing is becoming rarer.

“There will always be investment cycles in the economy, interest rates and shares,” he said at an ING adviser briefing in Melbourne.

“But the cycles in Australia are stabilising and getting milder.”

The ASX is now the least volatile of 20 share markets around the world.

Despite this, investors have turned off shares since the last significant drop in the market in 2003.

“Nobody should be selling stocks when there is gloom in the market,” Stammer said.

“But unfortunately, a lot of people did in 2003 and have given up on the stock market.

“What one should do is buy in the gloom and sell in the highs.”

Stammer admitted that as an investor he loves the gloom, as it presents so many buying opportunities, and a fellow believer in this respect was the late Kerry Packer.

“Kerry Packer was the classic cyclical investor, and Warren Buffet is the second type, who buys in gloom and holds onto the stock,” Stammer said.

“The only thing I don’t like the look of in our share market is all the good news has been priced in.”

But, the outlook for the Australian market still looks good, with world growth in its fifth year above the 30-year average.

He said what is encouraging is world growth being achieved without the US, and China and India reporting strong trend growth rather than cyclical highs and lows.

“These two countries are creating a large middle class, and that is good for Australia,” Stammer said.

In Australia, the economy is slated for 2.8 per cent growth, and state governments are increasing their spending on infrastructure.

“There are no early signs of a recession in Australia,” he said.

“There is no wage breakout or credit squeeze, so I can’t see a recession coming in the near future.”

While there is low inflation now, Stammer said the Reserve Bank (RBA) will take action to maintain the status quo, and as a result there will be no interest rate increases for the remainder of this year.

“The RBA will be watching wages closely, and if they start to grow then it will take action,” he said.