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Australian and Overseas Shares Cheap
The share market is bouncing all around the place. People are saying what is the “double dip” are we going to have one? Well I don’t know but the market has sold off anticipating one so if it happens is it already priced in? if it doesn’t happen what will that mean for share markets?
As discussed it is pointless to try and guess the direction of share markets. We need to focus on the underlying principles of the performance of the assets that we own as reflected by “business performance” NOT their “share price performance”. Over the long term the share price should reflect the “value” attributable to the profit generating ability of these businesses.
Reporting season has just finished in Australia and according to Australian Bureau of Statistics, Australian company profits rose 18.9 percent in the second quarter from the previous three months. This is the biggest jump in company profits in nine years further showing the resilience of the Australian economy to the GFC whilst other countries including the US still struggle. If companies are making bigger profits they can invest more and pay higher dividends wouldn’t that make the businesses more valuable hence share price rise?
Profits at mining companies surged 62.7 percent in the second quarter with the “Big Australian” BHP reported a doubling in profit to US$6.59 billion for the six months ended June 30.
Banks and insurers climbed 28.9 percent with Australia’s four largest banks, Commonwealth Bank of Australia, Westpac Banking Corp., Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd., this month reported increased earnings after stemming losses from bad loans after the financial crisis.
Woolworths Ltd., Australia’s biggest retailer, forecast last week that earnings will rise as much as 11 percent and announced it would buy back $700 million of its shares.
According to Bloomberg, analysts say profits for companies in the MSCI World Index of 24 developed nations will gain 28 percent in the next year. The MSCI index trades at 11.5 times forecast earnings. Except for the six months starting October 2008, the index has never traded below 12.5 times reported earnings. This is an indication that shares are cheap as you can buy the underlying businesses for a smaller multiple of profitability. Bloomberg also states profits for companies in the S&P 500 are forecast to reach US$83.34 a share in 2010 and climb 22 percent in the next 12 months to a record US$92.15 a share. What will be the effect of this on the value of the underlying businesses and other things being equal their share price?
Recently, Federal Deposit Insurance Corp. said U.S. lenders posted their biggest quarterly profit in almost three years. According to the FDIC US Bank profits totalled US$21.6 billion in the second quarter, up from US$18 billion in the first quarter. This is very important sign given the nature of the GFC and the impact it had on financial institutions. One of our international investments has approximately 50% of the portfolio allocated to overseas banks.
As discussed it is pointless to try and guess the direction of share markets. We need to focus on the underlying principles of the performance of the assets that we own as reflected by “business performance” NOT their “share price performance”. Over the long term the share price should reflect the “value” attributable to the profit generating ability of these businesses.
Reporting season has just finished in Australia and according to Australian Bureau of Statistics, Australian company profits rose 18.9 percent in the second quarter from the previous three months. This is the biggest jump in company profits in nine years further showing the resilience of the Australian economy to the GFC whilst other countries including the US still struggle. If companies are making bigger profits they can invest more and pay higher dividends wouldn’t that make the businesses more valuable hence share price rise?
Profits at mining companies surged 62.7 percent in the second quarter with the “Big Australian” BHP reported a doubling in profit to US$6.59 billion for the six months ended June 30.
Banks and insurers climbed 28.9 percent with Australia’s four largest banks, Commonwealth Bank of Australia, Westpac Banking Corp., Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd., this month reported increased earnings after stemming losses from bad loans after the financial crisis.
Woolworths Ltd., Australia’s biggest retailer, forecast last week that earnings will rise as much as 11 percent and announced it would buy back $700 million of its shares.
According to Bloomberg, analysts say profits for companies in the MSCI World Index of 24 developed nations will gain 28 percent in the next year. The MSCI index trades at 11.5 times forecast earnings. Except for the six months starting October 2008, the index has never traded below 12.5 times reported earnings. This is an indication that shares are cheap as you can buy the underlying businesses for a smaller multiple of profitability. Bloomberg also states profits for companies in the S&P 500 are forecast to reach US$83.34 a share in 2010 and climb 22 percent in the next 12 months to a record US$92.15 a share. What will be the effect of this on the value of the underlying businesses and other things being equal their share price?
Recently, Federal Deposit Insurance Corp. said U.S. lenders posted their biggest quarterly profit in almost three years. According to the FDIC US Bank profits totalled US$21.6 billion in the second quarter, up from US$18 billion in the first quarter. This is very important sign given the nature of the GFC and the impact it had on financial institutions. One of our international investments has approximately 50% of the portfolio allocated to overseas banks.
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