I have been bullish on Australian equities for the past 18 months, principally because of supportive interest rates, okay company valuations and improving corporate profits. But as we enter the seasonally weak May trading period, extra caution is needed.
Don’t get me wrong: I still see shares trending higher this year and next. Any correction or significant pullback is a buying opportunity. That said, Australian equities have had a good run and are vulnerable to a larger sell-off.
The S&P/ASX 200 index has returned 18.6% (including dividends) over one year. That momentum will be hard to maintain in the next few months given geopolitical tensions with North Korea, lower commodity prices and a patchy local economy.