Sharemarket Flirts With 5000

Sydney Morning Herald

Friday March 17, 2006

Marc Moncrief

AUSTRALIA'S benchmark sharemarket index could breach 5000 points for the first time today, but brokers and analysts responded to the giddy heights with aplomb.

The ASX 200 courted 5000 index points yesterday to close at 4977.9. The index reached an intra-day record at 4988.3 after Wall Street's S&P 500 index crossed 1300 for the first time in five years to close at 1303.02.

Record sharemarkets write their own headlines, but when they flirt with psychological boundaries experts call for calm.

"It's just a level like any other level," said Bell Potter's director of research, Peter Quinton. "There is upside in equity markets but it will be, in inverted commas, 'modest'."

Mr Quinton said that while the heady days of equities growth would diminish, shares were still the best investment available.

"If you buy bonds you are probably going to lose. Property is going nowhere. Cash is pathetic."

Just over a year has passed since the ASX 200 broke 4000 on December 21, 2004. Since then, 18 per cent of the index's improvement has come from mining giant BHP Billiton and its ride on the Asian resources boom.

BHP doubled the contribution of its nearest competitor in that time. Commonwealth Bank carried 9 per cent of the index's climb. When added to the contribution of ANZ, National Australia Bank and Westpac, the big four banks were responsible for 26 per cent of the index's growth.

While investors cheer BHP's contribution, they know resource prices will not remain at today's levels.

Hong Kong-based Credit Lyonnais economist Jim Walker believes increased resource prices will erode the profitability of Chinese companies. And China's threat this week to cap iron ore prices thrust the Resources Minister, Ian Macfarlane, into a diplomatic stoush.

Tollhurst Noall private client adviser Freda Miriklis said the broker had shifted to a more defensive position to acclimatise to the uncertain heights. Ms Miriklis said Tollhurst Noall had, until recently, taken a marginal cash position, but would now dilute its exposure to shares and allocate 10-15 per cent of funds to cash.

"We might be wrong," Ms Miriklis said. "But traditionally we are approaching what tends to be a softer period in the market."

But she stressed that the move did not signal a preparation for a steep drop in share prices.

"Any further weakness that we see in the market will prove to be an entry point," Ms Miriklis said.

Merrill Lynch Investment Managers' senior portfolio manager, Matthew Ryland, said low inflation and strong profits in the reporting season continued to drive the market higher.

He said that while sharemarket growth would become more muted because the market was more fully valued, fear of a fall should not drive people away from equities.

"We haven't fallen into the pit of the dotcom boom," Mr Ryland said.

He said pragmatism could prepare a soft landing for resources.