I posted this onn the correction thread earlier today, it may be of interest. Brokers may not be our favorite mob, however they do drive investment sentiment.
The following is an extract reported by FN Arena yesterday
"Credit Suisse holds the view, demand for Australian shares will outstrip supply significantly this year. The Broker even uses the term "unprecedented". The broker believes last year demand already outweighed supply, despite the large T3 offer, and this has pushed up the share market's performance into double digits again. This year the gap should be much, much wider.
If Credit Suisse's calculations prove correct circa 4% of the total market capitalisation of Australian equities will be looking for reinvestment in the market this year. All these funds come from excess cash (paid out through dividends or share buybacks), mandatory superannuation (with changes in legislation adding more to the basket this year), corporate mergers and acquisitions, private equity deals and -not to forget- the government's Super Fund.
Last year, the strategists argue, the overall PE for the Australian share market rose by 10%. Credit Suisse sees a direct relationship with the demand/supply balance. Considering the broker believes the imbalance for 2007 will be four times larger as in 2006, it would be easy to see the market PE to expand further this year.
The fact that the bond market has now priced out any rate hike in the near term will no doubt contribute to such a scenario.
There is, of course, a third scenario whereby share prices retreat to create room to move further upwards again.
At a time when several commentators are pointing out that underlying momentum in the US equity markets appears to be waning, and the market is starting to look "heavy", investors can possibly draw confidence from Credit Suisse's analysis that any possible weakness will make the overall market simply more attractive. "
Cheers