Signs of a bubble emerging in ASX | The Business | ABC NEWS

Summary

The Australian share market has surged to record highs, rising over 1,000 points in the past year and surpassing 9,000 points for the first time. Driven by FOMO, interest rate cuts, and easing global tensions, analysts warn the market shows early signs of a bubble. Banks have led gains, with the sector up 60% since November 2023, while resources lag. Major stocks like Commonwealth Bank have risen despite weak fundamentals, and CSL saw a sharp drop after job cuts and a spin-off. With strong links to the US market, any global downturn could significantly impact Australian investors and superannuation funds.

Takeaways

• 📈 The share market has rebounded to record highs, rising over 1,000 points in the past 12 months and surpassing 9,000 points for the first time.
• 🤯 FOMO, interest rate cuts, and easing global tensions have driven the market into record territory.
• 💰 Roger Montgomery highlights that enormous amounts of credit are circulating globally, fueling risk-taking and investment activity.
• ⚡ Central bankers cutting rates have made it easier for investors to take risks, creating a 'risk-on' environment.
• 🌏 Money is rotating from Wall Street into the Australian share market, particularly impacting large-cap stocks.
• 🏦 The bank sector is leading market gains, with the ASX 200 up 28% since November 2023 and banks up 60%.
• 💵 Commonwealth Bank's stock is up over 20% despite disappointing profit results, driven by investor inflows rather than fundamentals.
• 📉 CSL’s underwhelming financial results and job cuts caused its share price to drop, highlighting market irrationality in some cases.
• 💹 Superannuation funds have performed strongly, rising around 12% over the past 12 months.
• 🌐 Any major decline in the Australian market is likely to originate from a crash on Wall Street, given an 80–90% market correlation.
• ⏳ Market normalization is inevitable, but the timing and triggers are uncertain, potentially impacting many Australian investors.

Q & A

What has caused the Australian share market to reach record highs?

The Australian share market has reached record highs due to factors such as FOMO (fear of missing out), interest rate cuts, easing of global tensions, and large amounts of credit flowing through global markets.

What is Roger Montgomery’s perspective on the current market situation?

Roger Montgomery believes that enormous amounts of credit are circulating in global markets, creating a willingness to take on risk, which contributes to a 'risk on' environment and the potential formation of a bubble.

How have central bankers influenced the market according to the transcript?

Central bankers have influenced the market by cutting interest rates, which has made borrowing easier, encouraged risk-taking, and contributed to rising share prices.

Which sectors have been driving the Australian stock market recently?

The banking sector has been the primary driver of the Australian stock market, with significant gains from big banks, while the resources sector has underperformed.

Why has the Commonwealth Bank’s stock price risen despite disappointing profit results?

The stock price of the Commonwealth Bank has risen due to large amounts of money flowing into its shares, rather than significant improvements in the bank’s fundamental performance.

What example illustrates irrational market behavior mentioned in the transcript?

CSL provides an example of irrational market behavior, where its share price plunged following underwhelming financial results, job cuts, and the spin-off of its vaccine division, showing the market's overreaction.

What is meant by 'confession season' in the context of CSL?

'Confession season' refers to the time when companies traditionally disclose financial results and updates gradually. CSL bypassed this by releasing six months of information all at once without warning the market.

How have Australian superannuation funds performed over the past 12 months?

Australian superannuation funds have performed strongly, with growth of up to 12% over the past 12 months, reflecting the broader market rally.

What risk is highlighted for the Australian share market despite local stability?

The main risk is that any significant fall in the Australian market is likely to be triggered by a crash on Wall Street, given the high 80–90% correlation between the two markets.

What warning is given to investors regarding future market corrections?

Investors are warned that market corrections will happen eventually, and when they do, it will be painful for those who have behaved irrationally and for many Australians with superannuation caught in the downturn.

Why is money rotating from Wall Street into the Australian market?

Traders report that cash is rotating into the Australian market as investors seek opportunities outside the US, with inflows going into major stocks and MSCI Asia indices, including Australia.