As you will all be aware, the share market has been declining for some weeks.   At the moment, the outlook remains clouded, but we are concerned that this decline may have further to go in the short term, especially in overseas share markets. In our judgement, it is better to be cashed up in these conditions, just as we were during the GFC.

Even in a bear (falling) market, there are some shares which rise or remain stable, while others decline sharply. Among the latter are resources and energy stocks. We hold none of these stocks, and have not for nearly a year. We have also been light on banks, which have attractive high yields but have on the other hand been weak.

Over the last few weeks, the cash in our portfolios has been steadily increased, and the shares we continue to hold have either risen, or fallen only marginally.   For some time now we have held no overseas markets, such as the US S&P500 or the European share markets, and the international part of our portfolios is now 100% invested in cash, half US Dollars and half Australian cash deposits.

We believe that the Australian market is far better value than international markets, and this will limit its downside. In the portion of our portfolios invested in Australia, we are avoiding resources and energy stocks altogether for now, and hold shares which are resilient in these sorts of market conditions, such as Telstra, Sydney Airport and Transurban. So even though we have had some losses, the declines in our portfolios have been materially less than the fall in the markets.

We continue, as always, to carefully and continually monitor domestic and international economic and financial markets.