The #1 trending saying over the past fortnight is ‘hope is not a plan’! Yet we get the sense that some investors are ‘hoping’ that this market will climb higher. From a valuation perspective, the ASX does look attractive. For example, the difference between bank dividend yields and the cash rate is approaching 8%. Without splitting hairs, this is pretty much the highest differential on record (see chart below).


So on a bottom up basis, it is hard to see the catalyst for the next leg down, given share prices are already depressed and valuations are reasonably robust.

However, there are a plethora of macro issues that are weighing on the indexes, and at this stage the recent recovery in the market is consistent with a bear market relief rally.  

We are of course not wedded to this view.   Another couple of hundred points and we may re-assess our position.   But we are about to head into the traditionally weak ‘season’ on the ASX, where 4 of the 5 middle months are commonly negative.



Whether or not the old catch cry ‘sell in may and go away’ will ring true once more is anyone’s guess.    But for us - for now - return of capital remains the focus ahead of return on capital.

James Marlay

Thanks for sharing these sentiments Romano, some good charts..

Patrick Poke

I've not seen yields like that on Aussie banks for a long time! One of our contributors said a while ago that if the yield is over 10%, it's probably an illusion (paraphrased). I wonder if that's true here?...