History might not always repeat itself, but it frequently rhymes
This week saw the 29th anniversary of the 1987 stock market crash. For those that can't remember, (or choose not to) or weren't around to experience it, on "Black Tuesday" October 20th the Australian market fell by 25%, following the DJIA's fall of 22% in the US the previous night ("Black Monday"). By the end of October '87 the local market had fallen by over 40%, and at its lows had recorded an overall drawdown of 50% (exciting the followers of Fibonacci along the way) from the highs it had reached in August of that year.
The actual catalyst for the crash can be traced back to a number of individual and varied events, including a storm in the UK the previous Friday which closed the London exchange and increasing tensions in the Middle East between the USA and Iran. However, the underlying causes were a combination of over-inflated valuations, excessive leverage, and debt, exaggerated by program trading during the crash itself.
Of course human traits such as fear and greed also exaggerated the problem, as they have in every boom and bust before and since, and no doubt will do so again in the future.
The problem in Australia was further exaggerated by the likes of Bond Corporation, Quintex, and Rothwells, where greed was alive and well, along with a complete lack of fear (at least when it came to playing with other people's money).
The same happened in 2008 and will happen again next time. In 2008 the local market fell over 45% between September and March 2009, and one could argue that the QE and easy credit response of central banks we have seen since could well be setting the scene for the bursting of the resultant asset bubbles.
Interestingly, or importantly, in 2008 almost one in four Australian hedge funds produced a positive annual result, with the average of all funds falling by less than half of the ASX 200.
The reality is that when asset prices become unreasonably inflated, for whatever reason, a series of potentially unrelated events can act as a catalyst for the end of the game. Whether the asset bubble is in equities, or real estate, or caused by corporate actions or central bank policy, the bigger the bubble, the louder the bang.
Bennelong Twenty20 Australian Equities Fund returned 0.07% in September to take latest 6-months return to 9.06%.
APN Asian REIT Fund returned -0.70% in September, outperforming the Bloomberg Asia REIT Index which returned -1.53%, by 0.83%.
QATO Capital Market Neutral Long/Short Fund returned +1.23% for September, outperforming the ASX-100 by +1.21%, which returned +0.02%.
NWQ Fiduciary Fund returned +0.16% in September and +13.69% over the latest 24-months.
Touchstone Index Unaware Fund rose 0.47% in September to take latest 6-months return to 8.26%.
Affluence Investment Fund rose 0.59% in September to take the annualised performance since inception to 10.95% p.a.
KIS Asia Long Short Fund rose 1.45% in September taking the return for the most recent 12 months to 16.55%.
FUND REVIEWS released this week: Optimal Australia Absolute Trust; Bennelong Kardinia Absolute Return Fund; Pengana Absolute Return Asia Pacific Fund;
And on that note, have a great weekend.
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
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