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Home / Business

Chance to look ahead with perfect hindsight

30 Jun, 2000 03:24 AM4 mins to read

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By Giles Parkinson

Sydney view

Forecasters were all over the place with their predictions a year ago as they struggled to cope with the Asian crisis. So what are they saying now?

Tis the start of a new year, and time for the fearless and the fool-hardy to make predictions about what lies
in wait for investors.

Rule number one for the reader is not to take this too seriously. But if one begins by looking at past form, the exercise can be entertaining as well as informative.

There is nothing more frustrating than being second-guessed, but looking at what the soothsayers saw in the tea leaves this time last year, and why they got it so right or so wrong, can help to put the latest predictions in perspective.

Last year, the expert forecasts for financial markets were all over the place. The reason was that the Asian financial crisis had been exposed and identified but no one really had a clue about how that was going to affect Australia.

So while some highly paid economists and market strategists tipped the Australian dollar would rise to US75c, others predicted that it would fall to 60c. The latter got the closest, but only after watching it streak past their predictions to a low of 55c. It ended the year at 61.4c.

Predictions for the stock market were also scattered to the four winds for the same reasons. Broker BNP, for instance, came up with the rather precise forecast of 2584 for the All Ordinaries Index. Nikko Securities punted on 3250.

This meant the French-owned broking house reckoned the Australian stock market by the end of 1998 would be worth about $440 billion.

The Japanese-owned broker thought it would be worth $540 billion.

Japanese financial institutions have not had a good year.

Merrill Lynch got it just about right. The local strategist for the Thundering Herd, John Banos, wrote at the end of 1997 that the All Ords should end about 2800 by the end of 1998.

It finished at 2813.4.

That, however, does not mean that Merrill got all its stock picks right. News Corp, Rio, Brambles and Gandel Property Trust did just fine; QBE, SouthCorp and ANZ just managed to hold their own, while MIM, Orica and Howard Smith were a disappointment. Funnily enough, there was no mention of telcos, the boom stocks of the past 12 months.

Other strategists also came close, but don't embarrass them by asking how. Their most common stock selections for 1998 were those that had done badly in 1997: BHP, Amcor, PMP, Seven, Pioneer and Crane Group. They didn't fare any better in the last 12 months.

Maybe this is why strategists have changed their strategy for 1999 and are now playing it safe by recommending the stocks that did really well in 1998.

They reason that people will continue to use the phone (Telstra), will still go to the bank (NAB and Westpac), will ask other people to look after their money (AMP and Lend Lease), will go to the races (TAB and TabCorp) and will get sick (CSL).

News Corp and Brambles get many gongs as well, but mostly for what they do overseas.

The prior success theme is continued for lesser stocks - Macquarie, ASX, Westfield, Ten Network, Miller's Retail, John Fairfax and McGuigan Wines - but some recent stragglers are tipped to do better this year - Pacifica, HIH, Newcrest and United Energy.

Despite the variety of stock selections, almost all the professionals are punting on the All Ords finishing the year about 2900. Perhaps there's safety in dull numbers, but most suggest there is a risk of a fall in the first half before a recovery in the second. A repeat, of sorts, of 1998.

As for Merrill Lynch, it has a new strategist, Hugh Dougherty, who does not want to predict where the All Ords may end up this year. Like everyone else, his team like Brambles, Telstra and CSL, but they have thrown in oil producer Novus Petroleum and New Zealand's Fisher and Paykel, mostly because they like the look of its healthcare business.

Economists generally agree that interest rates should fall during the year, with some tipping two or three small cuts along the way. Only one, BIS Shrapnel, believes interest rates will go up, but it has by far the strongest economic growth outlook for the year of 3.6 per cent. Almost everyone else, including the Government and the OECD (not that they know any better) are punting on 2.4 to 2.7 per cent.

That, then, is the word from the economists and the other experts paid to share their predictions. Readers should take them for what they are - a stab in the twilight.

But they would be wrong to dismiss the work of economists out of hand. Some of them make very good historians.

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