The Australian share market could be close to record highs as both retail and institutional investors depart cash investments for equities, a Financial Wisdom adviser/client evening has heard.
"The bad news has dried up in the last six months," said CommSec chief economist Craig James, who was a guest speaker of FinWiz adviser Craig Hawkins.
"The share market's no longer rising or falling by one per cent in a day, it's going up at a more sedate pace, so we've had an easing in the volatility," he said.
As a result, investors are taking money out of their term deposits and putting it back in the share market, which has gone up due to this, he said.
Provided the bad news stays away, CommSec believes the market will continue to rise, with Mr James predicting record highs - possibly in the next couple of weeks.
It is important to focus on the All Ordinaries accumulation index which takes into account not just share price but also dividends, which is only four per cent away from record highs, he added.
The main reasons for this are the shift out of cash, and that companies are still making money.
"We've looked at all the companies reporting over the profit reporting season, and around 86 per cent of those companies are producing returns. Provided the economy grows and companies are making money, the share market will go up," he said.
In addition, much of the excess money has been invested in cash by retail investors and super funds, which have been holding elevated levels of cash of around 15 per cent - well up on the long-term average of eight or nine per cent, he said.
Mr James also tipped interest rates to stay unchanged for most of this year, adding that recent rate cuts were not having the desired effect because investors have been so heavily exposed to cash investments.
"It's interesting that we've had so many interest rate cuts but they don't seem to have worked - why is that the case? There are more term deposits out there, more depositors out there in the community rather than borrowers," he said.
The gap is the biggest on record, so now when rates are being cut more people are objecting because of the impact on their investments, rather than welcoming cuts because of their mortgage, he said.
