Come What May, Pick-up On Way

THE local market is expected to get a 50-point kick-along tomorrow, after the Dow Jones and Nasdaq closed higher on Friday. But analysts warn that any rise may be short-lived.

"On my calculation, we were rising at about a 30 per cent annual rate up until a couple of days ago, and you cant keep doing that," said Michael Heffernan, senior client adviser and strategist at Austock.

"I think we are probably going to see a bit of easing back or consolidation in the lead-up to the end of the financial year, simply because we cant keep galloping at the rate we have been."

It seems the adage "sell in May and go away" may come true again this year. Although some market watchers reject that as nothing more than an old wives tale, a major study found that the May effect was present in 36 of the 37 countries surveyed.

It also found that the longer the bull run, the more likely a correction.

But CommSecs senior equities economist, Craig James, reckons investors should not panic, as the fundamentals remain strong. He said investors had got carried away, and forgotten to factor in risk when buying stocks.

"Its a very healthy development," he said. "Thats what we saw in February. It took the heat out of the market and caused people to reassess their behaviour.

"You need those situations from time to time, particularly when sharemarkets run on too strongly."

Mr James said the threat might again come from the Chinese sharemarket, where the Government has already expressed some concerns over its stellar run, despite strong economic performance.

"I have this feeling that the market is in need of a period of consolidation or correction," he said.

"Although sharemarkets around the world are doing well, there are some new new jitters, particularly in China, which we should never take our eyes off."

The last time the Chinese market got cold feet, sharemarkets around the world fell, including Australias, which shed about 8 per cent.

"Having said that, the fundamentals in Australia remain strong," Mr James said.

He predicted that while any correction would be spread across the market, some sectors would do better than others. Mr James said industrials, which were now expensive, would be hardest hit, followed by retail stocks. Mining and materials stocks, which have benefited from the commodities boom, are likely to be least affected.

Still, not all are convinced. AMP Capitals head of strategic investments, Shane Oliver, thinks that although the market may let off a bit of steam, around 1 per cent, any major correction is more likely in August and September following tax-related sell-offs in the US.

"Its quite conceivable that the market will have a bit of a wobble, but I dont see a significant correction," he said.

"The weakness that we had in February and March relieved a bit of the pressure, so I think we will see a correction around August. But I dont see us embarking on a big correction at the moment."

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