Friday 19th October 2007
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The crash of 1929 saw 30% wiped off the US stockmarket in just a few days beginning on October 24th. The market continued to slide until its total losses reached 89%, a rout that preceded the Great Depression.
On October 19th 1987, the Dow Jones Industrial Average (DJIA) dropped dramatically sparking the end of a four and a half year bull run that began in 1982. By the end of October, the Australian stock market had fallen by 41.8%!
The current resources bull-run underpinning our market is now over 4 years old, and with recent market volatility many investors are wondering whether we are due for another fall. An equivalent crash today would see the lead ASX200 index fall from its current level above 6600 to around 5000, a scary proposition indeed!
20 years after October 1987, many investors are fearful as to what October 2007 will bring. Source: wise-owl.com, Bloomberg
However, we believe there is no need to panic this October. History is unlikely to repeat in this instance because the fundamentals supporting our market remain strong, valuations remain reasonable and the magnitude of gains seen in the current bull run are relatively modest. Although the market’s recent gains are high by historical standards, they pale in comparison to those seen in the years leading up to ‘Black Monday’ in October 1987.
Since its 2003 lows our market has risen by almost 150%; however the rally that preceded the 1987 crash saw the market rise 420% from its mid 1982 low!
Whilst using history as our guide, we should also consider that the last time our market was driven higher on the back of a resources boom was during the 1970’s. That boom lasted around 15 years and was underpinned by the industrialisation of Japan, a nation which at the time accounted for less than 2% of the world’s population. There is a similar story driving the current resources boom, the industrialisation of China and India. The difference is that these are the two most populous nations on Earth, and together account for 36% of the world’s population! Judging by these numbers, there is clearly the potential for many more years of solid gains.
There is a strong potential for the current mining boom to eclipse that seen in the 1970’s, given that a much larger chunk of the world’s population is involved. Source: wise-owl.com
Wise-owl.com is one of Australia's leading independent research houses providing thousands of retail investors and some of the world’s largest financial institutions with investment strategies and education on the stock market. We publish four research reports covering the entire spectrum of the market: Small to mid-cap Equities, ASX200, Derivatives (including CFDs) and the Pearl Report (featuring our analyst’s preferred stock picks with a longer term horizon). Our analysts are highly regarded in the finance industry and are regularly interviewed on Bloomberg TV and Sky Business News.
Click here for your complimentary wise-owl.com stock market report to learn more.
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