Reporting Season Preview: Sound fundamentals, but a tough start to reporting season for markets.

As we head into reporting season, the market remains concerned by the well known macro issues such as US/European growth and debt concerns, Chinese inflation and the Government’s response, the strength of the Australian dollar and its effect on varying sectors of the economy, and fears over a soft domestic economy. Will Australian property prices come back? Will the consumer continue to be cautious? Will the savings rate continue to remain at 20 year highs? Recent APRA data indicates for the year to June credit growth of around 5% and deposit growth around 12%.

Uncertainty, always present, is at elevated levels at the moment. If there is one thing the market dislikes, it is uncertainty. It saps confidence and leads to pressure on businesses, consumers and share prices. A calm head and a steady hand are what are needed, particularly in this market. This is not the time to be listening to your emotions.

These are some of the challenges facing the market and as a result it is hard to see the market running strongly in the short term. Looking through sentiment to fundamentals we see the All Ordinaries Index value at around 4700, yes on a longer term view the market is cheap.

Value is now evident in most sectors. When we look back in a few years, we will quite likely realise that we are currently in a window of one of the rare great buying opportunities.

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