Photographer: David Moir/Bloomberg

Australia's Bull Market May Lose Some Steam, Wealth Manager Says

  • Shaw and Partners’ Goody to deploy cash only after declines
  • Technical indicators flash overbought levels for equities

A new bull market for Australia’s equities looks like it’s about to run out of puff for one Shaw and Partners Ltd. wealth manager. He is waiting to see some declines in January before putting any more money into stocks.

The S&P/ASX 200 Index’s 12 percent surge in just two months has sent the relative-strength indicator to the highest level since August, signaling the rally may have gone too far, too fast. That’s prompting Shaw’s Sydney-based Karl Goody to cash in on gains made since buying in mid-November so he can redeploy money after the pullback he expects in shares.

“I’m still pretty cautious,” said Goody, who helps oversee about $A10 billion ($7.3 billion) as a private wealth manager at Shaw. “You’re going to see some profit taking over the next few days, even if it doesn’t become a more sizable sell-down.”

As this charts shows, history isn’t always kind to stock bulls in the immediate aftermath of the 14-day RSI reaching these levels. The technical measure has only tipped above 70 once in the past two years, preceding a 3.1 percent loss in the subsequent month.

Over at Citigroup Inc., strategists are advising investors to hold fewer Aussie equities in global portfolios, noting the surge in valuations amid the recent rally. As the following chart shows, the gauge’s estimated price-earnings ratio remains well above the five-year average.

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