The Australian share market is likely to be held "hostage" to world oil prices, dealers said on Friday as the market ended a six-trading-day losing streak. For the week ending July 4, the benchmark S&P/ASX 200 index fell 154.9 points, or 3.0 percent, to 5,082.1 despite a 1.7 percent surge on Friday.
The oil price rise to a new record above 146 US dollars per barrel placed greater downward pressure on stocks, including the Australian bourse which hit its lowest level since September 2006, said Shane Oliver, chief economist at AMP Capital Investors.
"While shares are very oversold and due for at least a short-term bounce they are now hostage to the oil price and it's anyone's guess as to where it will go in the short term," he said.
"If the oil price continues to surge then shares will remain under pressure, if it falls back then shares will have a great rebound.
Oliver said September/October was often rough for shares and further falls were possible. "As such, it remains a time for investor caution and this is likely to be the case for buffetted by global investor jitters and a fall in coal prices, with the ASX 200 slipping below the 5,000 point mark for the first time in almost two years.
"Australian shares look entrenched in a bear market with the ASX/200 27 percent below the high set in November last year," ANZ said in its weekly economic outlook.
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