The Valor Blog.
Investment News and Views, Direct from Our Team.

The single best measure followup

For those that are expecting the Australian stock market to get back to its highs of 6800 in 2007  any time soon, I would suggest to once again use the Total Market Capitalisation (TMC) to Gross National Product (GNP) method. This would show that Australian markets were far more over priced than US markets in 2007 and therefore are unlikely to return soon to these overvalued levels.

In 2007 the Australian TMC to GNP came close to 140%. This is not far off to the all time high of approximately 145% of the tech bubble in the US. In 2007 the US TMC to GNP was around 110%. It took 13 years for the US markets to get back to their 2000 highs. Will Australia have the same issue with its 2007 highs? Only time will tell.

With the mining boom significantly boosting our GNP, there may be slower or even negative growth in our average incomes over the next few years. This is likely to have an impact on markets and so we are relatively cautious about the mid term outlook for Australian markets.