Australian Shares, Investments

Market correction on its way

share market correction

Investors are warned to expect a share market correction even if the Australian Securities Exchange experiences better performance after the recent budget.

A senior economist has warned investors to be prepared for a correction in the domestic share market at some point in the short term, regardless of any boost it might get as a result of last month’s federal budget.

“The share market likes more stimulus basically, which is positive and good for earnings. We’ve already seen very strong earnings growth. Shares have had a very strong run up this year after we made a record high [last month], but at some point we’re going to see a correction,” AMP Capital head of investment strategy and economics Shane Oliver said.

Oliver pointed out while unpleasant, a share market correction did not mean investors have anything to overly worry about.

“I don’t like them. They make everyone nervous, but they are normal. Still, I reckon shares will end the year higher than they are presently,” he said.

With regard to residential property, he said prices are likely to continue to rise on the back of the budget measures.

“There is more stimulus in there for housing. More people can get in with 5 per cent deposits, with 2 per cent deposits for single parents,” he said.

“I think it’s great to help first-home buyers and single parents, but the downside is if you’re giving more money to that group, and make it easier for that group to get in, but not dramatically changing the supply and taking something away from other groups, then you just end up with higher prices and people [entering the market] with very, very high debt levels.”

According to Oliver, the Australian dollar is also set to rise due to the fiscal stimulus contained in the budget, as well as high commodity prices and a falling US dollar.


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