The Australian share market has made history, surpassing 9,000 index points \u2014 a boon to millions of workers’ super funds.<\/p>\n
A strong company profit reporting season, interest rate cuts and easing fears of global trade tensions have sent the market into record territory.<\/p>\n
Working from her inner-city Sydney home, trader\u00a0Danielle Ecuyer rarely takes her eyes off the share market, keenly watching the factors driving it.<\/p>\n
“So you’re talking to somebody who used to be a stockbroker, which is a really bad sign, and it’s called flicking on your phone and looking to what’s happened to US markets overnight,” she said.<\/p>\n
“And that’s because I’m a complete tragic.<\/p>\n
“I used to do global emerging markets, so I’d check in every morning with what’s happened overseas.”<\/p>\n
<\/p>\n
Danielle Ecuyer is a trader in Sydney. (ABC News: John Gunn)<\/p>\n
Ms Ecuyer has been looking at CSL’s recently published profit reports, and she has been watching the ASX’s biotech stalwart share price closely.<\/p>\n
“It’s a company that has consistently achieved earnings growth and invested for the future, and that’s what investors like,” she said.<\/p>\n
The rapid rise in the Commonwealth Bank’s share price has also caught her attention.<\/p>\n
Ms Ecuyer said the stock’s success had been driven by lower interest rates \u2014 and the demand that has generated for the bank’s mortgage products, rising property prices, and reduced fears about global trade.<\/p>\n
“Many of those factors aren’t so much about the bank’s fundamentals improving that much,” she said.<\/p>\n
“It’s more to do with the fact that there’s been a weight of money coming into it, which has pushed the stock higher.”<\/p>\n
Loading…Markets awash with cash<\/p>\n
Looking more broadly though, since 2008 central banks around the world have pumped trillions of dollars into the financial markets.<\/p>\n
Relatively low interest rates have also produced record amounts of borrowing, or leverage.<\/p>\n
Fund manager Roger Montgomery said enormous amounts of liquidity, or credit, continued to slosh through global markets \u2014 a legacy of the central bank cash splash during the GFC and again during COVID — and it was all looking for a home.<\/p>\n
“[Liquidity relates to] the ability to lend money,” he said.<\/p>\n
“So the ability to lend money has been going up and people are borrowing because that capacity is there, there’s less friction, they’re willing to take on risk.<\/p>\n
<\/p>\n
Fund manager Roger Montgomery says investors are currently willing to take on more risk. (ABC News: John Gunn)<\/p>\n
“And markets have been going up and that helps fuel that acceptance of risk.<\/p>\n
“So it’s ‘risk on’ if you like.”<\/p>\n
But the recent stratospheric rise in the Commonwealth Bank’s share price represents too much risk for the Montgomery Fund.<\/p>\n
It’s meant the fund has missed out on riding the big bull run in the stock.<\/p>\n
“We’ve been under-weight [the CBA] simply because the weighting of the banks is so high that it’s illogical or irrational,” Mr Montgomery said.<\/p>\n
Being underweight refers to a fund not owning as much of the stock as its actual weighting in the ASX 200 index.<\/p>\n
For example, the CBA might have a 10 per cent weighting in the index, but a fund manager might only have 5 per cent of its portfolio invested in the bank.<\/p>\n
“You’ve got almost 25 or 27 per cent of the index in just four banks,” Mr Montgomery said.<\/p>\n
“Now that is too high.”<\/p>\n
Disconnect opening up<\/p>\n
Stock market veteran Marcus Padley reckons the market’s irrational behaviour is best represented by CSL’s\u00a0big share plunge last week.<\/p>\n
“That’s a sign to me of the failure of fundamental analysis to be able to value a stock,” he said.<\/p>\n