Weekly Wrap from Pythagoras Investing: 6,800 target for the ASX200

Since coronavirus struck the world has been a very strange place.  After falling very rapidly, the markets bottomed at the 23rd of March when the ASX200 index was at 4650 (approx.).  Whilst the markets have done a dance with volatility they have risen significantly since then.  Today the ASX200 stands at around 6000.

When we compared our markets to China we knew the recovery was going to be slow but felt assured that the recovery would come. 

We have come a long way.  On the 27 March we wrote that the low had passed and we didn’t expect to revisit the 4400-4650 (ASX 200) levels again any time soon.

Reflecting on a note I wrote on 5 April 2020 when the market was at 5000 points for the ASX200.  We had a target for the market to return to 6350 – broadly due to stimulus money flowing (expected to continue); and the markets were beginning to see “through to the other side of the crisis” ie the potential to return to a more normal life. 

America’s Dow Jones dropped by 36% but has recovered very quickly, now only down 10% from its February highs.  By comparison Australia is now about 18% down from February highs.  The Chinese market by comparison is down 5 % from its highs. 

We believe the Chinese have a lot of stimulus in reserve if it is needed.  Their stock market isn’t a tool of government as it is in most countries and acts more as a “real” reflection of the actual performance of the economy. The Chinese say little and just do!  

We are changing our estimate of where the Australian ASX200 will be by February 2021.  We now believe it will achieve 6800 points.  Right now, the ASX 200 is trading a touch above 6000.  This means we have 13% upside from here!  Ultimately if we achieve this level it will mean that we will have been down 5% from the February 2020 level.

We are moving in the right direction and we expect more upward market movement.  We expect that coronavirus will be substantially over from a market point of view by October.  Once the realisation of this is clear, markets will power on to our target. 

It is not that we expect to be up every day. There are many challenges still to overcome eg an Australian recession, a US election, a China:America trade war, a China:Australia trade war, a China:India war/trade war etc.  Indeed there are many challenges to surface, but the worst the world can throw at us right now has passed.

We continue to recommend within our stocks and enjoy the recovery as it unfolds. If you would like to see how modest trading can be used to assist your returns please contact michael@pythagorasinvesting.com

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