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Weekly Review & Outlook 6-13 September 2010

A strong market rebound and better than expected economic growth figures were highlights of last week on the market.

But first the better than expected economic data.

A generally accepted economic maxim is that “investment is the engine of economic growth”. If this is the case, then in Australia’s case China is clearly “the driver of the locomotive”.

If any evidence was needed for this it is in the recent figures for Gross Domestic Product and the Balance of Payments.

These showed in clear and unequivocal terms that a major driver of the strong economic performance in the June quarter was the strength of Australia’s exports. Indeed of the 1.2% economic growth recorded in the June quarter 0.4% was due to the boom in exports, of which China is a major recipient.. This significant external trade result was due to booming prices for coal and iron ore. In the quarter according to the Australian Bureau of Statistics (ABS), minerals prices (predominantly iron ore) rose by 39%, while prices for coal increased 52%.

A full version of the Review is available to subscribers by clicking onto the Sharemarket Specials section


The avalanche of company reports turned into a landslide last week with the bulk of the almost 2000 companies listed on the ASX filing their June end returns in the last week permitted for such returns.

By and large the majority of the reports were what I would describe as workmanlike, in that they delivered results which were pretty much in line with what was expected or a little above. There was also a small number outstanding results.

On the other hand those that disappointed were in the decided minority.

More broadly the market was buffeted by international events last week, overlayed on uncertainty about the Australian Election result. Significantly the initial fear surrounding a hung parliament had no material effect on the market on Monday with only a 0.1% fall in the index. It was only the weakness of international economies and markets which help drag our market down as the week progressed.

A full version of the Review is available to subscribers by clicking onto the Sharemarket Specials section

Weekly Review & Outlook 23-30 August 2010
A veritable avalanche of company reports hit the market last week- the second last week of the current reporting season, and almost universally the results either equalled or bettered expectations. Indeed some results were outstanding, which included among the larger companies Newcrest Mining, Woodside Petroleum, Leighton Holdings, Monadelphous and Westfield group.

In the mid size range there were also some very impressive results. Among these were a number of Austock covered stocks including Mineral Resources, Retail Food Group, Carsales.com, Slater and Gordon, Connect East, Healthscope and The Reject Shop.

Trawling through the results to find those which disappointed the market was not an easy task, but a few did emerge to disappoint and heading this list was Downer EDI. Then one could point to AMP and QBE, but even those stocks put out reports which were reasonable, with AMP reporting a 4.4% lift in profit while QBE confirmed their previous advice to the market that profits would be down this year compared to last year and accordingly surprised no one.

A full version of the Review is available to subscribers by clicking onto the Sharemarket Specials section

Weekly Review & Outlook 16 -23 August 2010
The market delivered its first fall for this financial year last week due largely to the re emergence of gloomy sentiment around the world, rather than local factors.

Indeed international “gloomy sentiment” outweighed what could only be described as a clutch of impressive and workmanlike results delivered by a number of leading blue-chip and mid capitalisation companies. The reports which disappointed were clearly in the minority.

The net result was that over the five trading days our market was down by 3% making the decline so far this year to be a touch over 9%. As mentioned in previous reviews we have performed much worse than many developed markets this year. Specifically and despite its economy recovering in only a hesitating way, the US has seen its Dow Jones Index recording a slight rise this year. We see the German market up 3.3%, London down only 3%, Hong Kong down a little more by 3.5% while Japan continues to drag the chain and is down 13.7%.

So on the local corporate scene, the companies which produced reports that can only be described as particularly good, included firstly and most prominently, the Commonwealth Bank.

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Weekly Review & Outlook 9-16 August 2010
With the reporting season now under way in earnest, another good week was had by the market rising around 1% over the 5 trading days.- that’s 5 weeks in a row where the market has been in the green.

However while the key index is up 8% over the last month, we still remain 6% lower than we were at the start of this year, and on an international comparison basis we still lag major overseas markets.

Specifically the American market is actually up 2.5%, London down fractionally by 0.5%, Hong Kong down by 1.5%, the German market is up by 6% and the French market is also up by a similar margin but Japan is again dragging the chain and is down 9%

Locally the start of the reporting season saw a number of important large and mid size companies announcing results- with “standout” results, generally evenly balancing those which were either mediocre or disappointing.

A full version of the Review is available to subscribers by clicking onto the Sharemarket Specials section


Weekly Review & Outlook 2 -9 August 2010


The much lower than expected inflation numbers last week would seem to have all but ruled out any interest rate rises for the rest of the year.

Such relative certainty after a year of either monthly rate rises or wondering if there will be one, has clearly acted as a dampener on the market, -led to uncertainty by consumers and business, which inturn adversely impacted economic activity generally, and listed companies revenue and profits more particularly.

But a bird’s eye view of last week, shows that the market performed strongly rising by 3% over the five trading days, -even though we are in that hiatus period in the lead up to the federal election.

Accordingly we have improved our position compared with the end of last year. We’re now down only 6%, compared with a 13% deficit in the six months to end June. Moreover it’s interesting to note that while in relative terms our economy is performing better than many overseas countries, our share market isn’t. Other markets have done much better. The New York Dow Jones Index is now slightly above the end of last year, London down by only 2%, Hong Kong down by 4%, but Tokyo again “drags the chain” being down by 8%.

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Outlook 26 July- 2 August 2010
In the first week of the election period, the market put in a reasonable performance rising on three out of five trading days but finishing the week with a Friday (almost 2%) flourish. However before we get too excited we’re still down almost 8% so far this calendar year.<.b>

More specifically news from major companies listed on our market were on balance slightly more positive than negative, US corporate news was very positive, and European economic news better than expected.

On an international comparison basis its interesting and disappointing to note that major international markets except Japan have outperformed us in 2010. In particular the Dow Jones is only down by 2.8%, London 1%, Hong Kong 6% but Japan has performed worst of all with its Nikkei Index down 12%.

At the local level and attracting considerable attention during the week was a speech by the Governor of the Reserve Bank about the lessons to be learned from the Global Financial Crisis. In this talk he referred to the expansionary roles which governments can play where the private capital markets are unable to perform as they should - Specifically he referred, among other things to Central Banks purchasing private sector marketable securities in addition to their traditional role of buying and selling a governments securities

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Weekly Review & Outlook 19-26 July 2010
Generally better than expected economic news and a mixed bag of corporate announcements, combined to produce a small rise in the index of 0.6%. This builds on the better result the previous week, after 5 weeks of erratic movements. The net outcome is that the main market index is finally back to the level it was in the immediate aftermath of the announcement of the initial mining super profit tax in early May

But starting the week on an “upbeat” note were very positive quarterly earnings results from US companies Intel and Alcoa, stocks which traditionally “kick off” their reporting season.

Locally positive economic news came on Wednesday with results from a survey of consumer sentiment that showed a sharp increase of 11.1% in July- although not quite recovering the 12.3% drop of the previous 2 months.

Moreover the rebound in consumer confidence in July was not totally unexpected as it came on the back of a trifecta of ‘one-off events’ which generally went down as favourable news with consumers. Specifically in the space of just 10 days we saw Ms Julia Gillard replace Kevin Rudd as Prime Minister, the government announce a proposal to buy assets from Telstra worth $11 billion, and a major revision to the mining super profit tax!

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Weekly Review & Outlook 17-24 June2010
After a rocky start to the week with most world sharemarket indices falling by around 3%, the various markets staged a marked recovery over the latter stages with most markets finishing the week actually up by almost 1%.

While overseas events dominated early, local factors took prominence in determining the shape of the Australian markets direction as the week unfolded.

Very significantly Thursday’s labour market data which showed that the unemployment rate dropped from 5.4% to 5.2% in May came as a surprise to many, given the softness which has been evident in a range of partial indicators of activity over recent months.

These include building approvals, finance for home lending and commercial lending, as well as uninspiring retail sales figures and the flow-on effects of higher interest rates. Taken together, this data has combined to provide expectations that the labour market is likely to soften over the course of the next few months.

However as the labour market is a lagging indicator, it may be some months yet before the labour market trend alters direction.
A full version of the Review is available to subscribers by clicking onto the Sharemarket Specials section

Weekly Review & Outlook 7-14 June 2010
A genuine “curates egg” well describes the market last week, with a mixture of the good and the not so good.

First the good-
Merger and acquisition activity has continued- economic data released last week was reasonable –some positive announcements by a few major companies- and generally upbeat economic data from overseas.
Now the bad—
A few profit downgrades-- debate continues to rage about the mining super tax, albeit there are some faint indications that we could be on the way to a more meaningful dialogue as a prelude to a welcome compromise, and increasing concern about the Gulf of Mexico oil spill..

And so the end result was that over the 5 trading days the market fell by 0.3%- not bad in the circumstances but still down 9% on the level at the end of last year, but 13% higher that a year ago.

However, and somewhat ironically in the midst of intense global uncertainty emanating mainly from Europe and to the lesser extent the United States, our market has if fact been one of the worst performers of major share markets around the world in 2010..

Specifically even though America has problems with the oil spill, its Dow Jones Index is only down a surprisingly low 1.7% so far this year, London down 4.8%, Japan down 6.6%, and Germany is down by only 3.2%.

So what are the reasons for our poorer performance? There is no single answer, but some obvious explanations include the adverse impact of the mining tax on the market overall, and the fact that our economy is decelerating. For instance GDP in the March quarter showed a lethargic rise of only 0.5%, with the major contributor being a strong rise in Government Investment. However this rise was largely related to the stimulus package spending on schools which has probably abated during the June quarter. Accordingly a weak June quarter GDP is more likely than not.

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Weekly Review & Outlook 31 May- 7 June 2010
Local and global economic uncertainty can sometimes obscure positive developments which in a more sympathetic environment would be warmly welcomed.

Certainly a range of recent local corporate developments are reflective of robust underlying fundamentals, while internationally there are also some favourable portents developments which have tended to be overlooked in the current fog of uncertainty.

A good way to look at the current situation is draw up a balance sheet of the positives and negatives which are impacting on our economies and markets.

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Weekly Review & Outlook 24-31 May 2010
Sovereign risk is a term which has generally not associated with Australia- But is it now?

Since the announcement of the resources super profit tax on May 2, there has been a 10% plunge in the Australian dollar against the US currency, the main market index (ASX 200) has fallen by 12%, BHP’s share price down by 11%, Rio down 14%, and curiously but understandably after a moments reflection, the banks have been hit even harder led by Westpac which is down almost 20%.

Such a broad ranging sell off in Australia’s top 10 stocks and the $A is indicative of foreign investors liquidating major Australian shares, suggestive of sovereign risk now becoming as issue for Australia.

Indeed, since the announcement of the tax other major share markets have performed significantly better than Australia. New York has fallen by only 5%, London 7%, France 8%, Japan 9%, and Germany which has been at the epicentre of the Greek bailout package has fallen only 2%- and we’re down 10%!

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Weekly Review & Outlook 17-24 May 2010

The huge European “bail out” of Greece, the Federal Budget which contains no major winners or losers, and an impressing trading update from the Commonwealth Bank, helped finish with the first weekly rise (2.7%) in the last four weeks, but still 5.6% down so far this year.

But first the Budget. It provides for a “return to surplus in 2012-13, three years ahead of scheduled” which has been generally, but not universally accepted, as a “good thing” by the media commentariat.

It could be cogently argued that the current and prospective state of the economy should have delivered a budget surplus now, not as I would say in the manana (tomorrow, tomorrow) for reasons which are outlined below.

First key forecasts in this budget reveal;
o An economy which is growing strongly. Economic activity (GDP) is expected to accelerate over the next couple of years to an annual growth of 4% in 2011/12;
o The unemployment rate is expected to decline to 4.75% to then;
o While inflation in Consumer Price Index terms, is expected to remain steady and be low, at an annual rate of 2.5%.

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Weekly Review & Outlook 10-17 May 2010
In soccer it’s called an “own goal” and in the vernacular it’s called “shooting yourself in the foot”.

Some might describe the Governments response to the Henry tax review with its proposal for the “Resources Super Profit tax” at 40% to apply from July 2012, in these terms.

But perhaps a few key facts need to be made with respect to this proposal:

- Increasing tax is not an incentive for increased activity or mineral production.

- The Prime Ministers statement that “over the last decade the mining companies generated $80 billion in higher profits. And at the same time half of the people received only an additional $9 billion”, is at best misleading, and at worst wrong. - And with all due respect, the Prime Minister simply doesn’t know what he is talking about.

- On the contrary over the last decade a total of $64 billion was paid in company tax by just two Australian resource companies namely BHP and RIO – and that’s not even counting substantial state royalty taxes.

- In 2008/2009 just these two miners alone contributed $9.6 billion of company tax to the Government - equivalent to 17% of total company tax raised from all Australian companies last year.

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Weekly Review & Outlook 3*10 May 2010
Market tremors from the Greek debt imbroglio which is assuming almost farcical proportions, concerns about possible tax increases contained in the “Henry Tax Review”, and a higher than expected inflation result restrained the market last week.

But first the Greek situation.- It has all the hallmarks now of a “Greek Tragedy” with agreed “bail outs”, recanting of “bail outs”, and Germany to-ing and fro-ing before regional elections in a couple of weeks time, all capped off by ratings agenciy, S+P, lowering Greece’s debt rating to BB+ from BBB+. In fact, and almost incredulously, the rating downgrade was the trigger for declines in most world share market indices last week -some would say that the rating downgrade was about 6 months too late, as it was almost clear to Blind Freddy, that Greece was having financial difficulties last January!!

The propensity of rating agencies to continually be “behind the curve” rekindles memories of how the rating agencies gave favorable credit ratings to the sub prime mortgage collateralized debt obligations (CDO’s) which were integral to the precipitation to the Global Financial Crisis

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Profit taking was the “order of the day” last week despite the general absence of negative corporate news, upbeat commentary by the International Monetary Fund (IMF) and robust earnings results in the US.

Indeed the update provided by the IMF showed world growth is expected to be strong next year. While this result was not surprising, nevertheless it was welcomed. It confirmed that the worst of the effects of the global financial crisis is now behind us and we can look forward to a slow but measured pace of recovery over the next couple of years. In brief world economic growth in 2010 in the advanced economies is expected to be 4.2% while in the developing and emerging economies it is expected to be 6.3%.

But reverting to our market, the net result saw the Index down 2.0% for the week to bring it close to where it finished last year. But to put matters into some sort of perspective, the index is up 33% over the last 12 months!

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Weekly Review & Outlook 19-26 April 2010
The market consolidates at around 5000 points- (the best level since before Lehman Brothers collapsed on 15 September 2008), interest rates likely to be on hold for a couple of months, and some exciting corporate developments locally and overseas were just some of the highlights of last week on the market.

While 5000 points on the ASX 200 Index is a psychological level for some, for me it is a number to be passed through, as the market progresses and benefits from the generally solid local economic underpinnings, and measured but positive developments in major overseas economies.

Indeed perhaps a major catalyst for the strong performance of our 4 major banks last week were the very strong quarterly results delivered by 2 major American Banks - J P Morgan and Bank of America.

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Weekly Review & Outlook 12-19 April 2010
Takeovers and rejection of takeovers in coal and gold stocks and huge price rises announced for iron ore provided acute market excitement to the first week of the last quarter of the current financial year.

This resource excitement however tended to overshadow the fact that last week saw the highest level that the share price index has recorded since the beginning days of the Global Financial Crisis on Wednesday the 24th of September 2008.

Also the major economic news during the week was the not surprising decision by the Reserve Bank to lift official interest rates by a quarter of a percent to 4.25%.

But first the excitement of the coal front reached fever pitch last week with the three cornered contest between Macarthur Coal, Gloucester Coal and the American company Peabody Energy Corporation reputedly the world’s largest private sector coal company unfolded.

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Weekly Review & Outlook 5-12 April 2010
Action on the resources front stole the limelight on the market last week- from a revised and decidedly beneficial iron ore pricing regime for BHP, to late week takeovers for Lihir Gold and Macarthur Coal.

Other corporate news was somewhat of a mixed bag, economic data lack lustre, while two out of three interim reports from listed companies generally disappointed the market.

The overall situation was that the index has more or less treaded water over the shortened pre Easter week, yet is still 50% higher than 12 months ago and “line ball” with where it finished last year.

But first, we had Tuesday’s announcement by BHP Billiton about a change to iron ore pricing. In particular it advised that it has reached agreement with a significant number of customers to move iron ore contract pricing to a price which more readily reflects the current market, rather than on the annual contract basis. As a result the share prices of both BHP and RIO soared to monthly highs.

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Weekly Review & Outlook 29 March -5 April 2010
In the midst of a disparate array of important corporate news and significant international and economic and market events, our market continued its consolidation pattern of the last month. The ASX200 Index finished on Friday at 4890, up 10% from the February low and almost where we finished last year- a year when the Index itself showed a remarkable resurgence by over 31%.

One such disparate corporate event included the lodgement of a prospectus for an Initial Public Offering (IPO) by Gerard Lighting. Gerard is the largest manufacturer of commercial lighting in Australia, and is raising $85 million priced at $1 per share. The offer is open to investors from 29 March with Austock as the underwriters to the issue.

As commented in last week’s review, the general upward movement in overall share market prices is indeed very conducive to capital raisings, through IPO’s, placements and rights issues. Accordingly more such IPO’s can be expected over the course of 2010.

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Weekly Review & Outlook 22 -29 March 2010
A workmanlike result from David Jones, upbeat economic commentary from the Reserve Bank, US interest rates continuing at historically low levels and the New York Dow Jones Index at an18 month high, were just some of the factors impacting our market last week.

The net result saw the ASX200 Index rise by a very moderate 1% over the week which puts it within striking distance of the high point recorded two months ago.

It is significant to note that over the last 12 months our Index is now up 41% compared with the Dow Jones which is up 43% London’s FT100 Index up 49% Tokyo up 46% while Hong Kong leads the rest being up 64%.

Clearly share markets around the world have recovered strongly in the wake of government stimulus packages together with historically low interest rates.

But dominating the Australian corporate scene last week was the half yearly report from David Jones which, without being exceptional, was “quietly impressive”.

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Upbeat corporate news and benign economic data, has seen the market claw back lost ground, with a rebound of around 8% in overall share market prices over the last few weeks.

More particularly, positive developments on the coal and iron ore front, and a rekindling of “billion dollar” interest in Queensland’s coal seam methane assets, were key catalysts for the market’s movement last week.

But on the economic front, the week started with a very strong surge in the number of job advertisements in the ANZ Bank survey. This result was reinforced later in the week by the official ABS labour force figures which showed that the unemployment rate in February remained at a relatively low 5.3%.

Interestingly this rate is the same as that recorded in January, albeit that the January figure has now (and somewhat incredibly as January represented a marked decline from 5.5% in December) has been revised down from 5.3% to 5.2%. Significantly the figures also show that there was a moderate increase in full time employment although part time employment eased by roughly the same amount.

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Sharemarket Review and Outlook March 8-15 2010
Hard on the heels of a decidedly better than anticipated half yearly reporting season, was a range of particularly robust key economic data, that provide a solid foundation upon which to build sustainable share market growth this year and next.

Also and significantly, last week was the first rise in the market since the Christmas week of last year, with a 2.1% lift in the ASX200 Index.

But economic highlights occurred last Tuesday and Wednesday with the interest rate decision by the Reserve Bank followed by GDP figures for the December quarter.

Not unexpectedly, the Reserve Bank lifted interest rates by 0.25% to 4%- a decision greeted with muted enthusiasm by the market. A key message to emerge from the decision however, is that it is likely to be followed by several additional rate rises this year to reach a level by December of this year of around 4.5-5%.

As previously noted however, the rate rise is not all bad. Specifically it reflects the Board’s judgement that economic growth is likely to be close to trend this year (i.e. over 3% compared to 1% last year), and inflation is likely to continue at historically low levels of between 2 and 3%pa - “A great set of numbers” to use a phase popularised by former Treasury and Prime Minister Keating

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Sharemarket Review and Outlook March1- 8 2010
The last week of the reporting season delivered a mix bag of company results while the overseas markets and economies showed some degree of equanimity.

The result was that the ASX200 Index has almost been becalmed over the five trading days and finished with a minor fall of 0.5%.

However significantly, and as was commented last week, the level of the index of around 4650 points is about the same as it was back in September last year when the index was surging upwards.

With the general trend of reports in the recent past in most cases exceeding expectations, one could form a considered view that for sound stocks with reasonable profit prospects, the current easing in share prices may well represent opportunities for medium term investors.

Locally on the economic front, which of course provides the structural underpinning for future market behaviour, indications are that activity is quietly gathering momentum, but at a lack lustre pace. For instance figures on sales of motor vehicles (a partial indicator of demand) showed a decline during the month of January –a result which was not unexpected as it was the first month following the removal of the investment allowance tax benefit for the purchase of motor vehicles.

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Sharemarket Review and Outlook 22February -1 March2010
A blockbuster week for company reports; an increasingly likely satisfactory resolution to the Greece debt crisis; better than expected American economic data; and a very pleasantly surprising first quarter trading update from Westpac, propelled the market to a three week high last week.

But in brief the market’s performance so far this year has been lack lustre. The index is actually 4% lower than at the end of last year, and at its current level of around 4650 is close to level it was in September last year on its way up.

Considering the quality of most the reports which have been made over the past two weeks, this market environment in many instances, represents attractive opportunities for medium term investors.

At the broader level of the economy, the recently released minutes of the February meeting of the Reserve Bank Board underlined the fact that the Bank will move interest rates upwards this year, but on a very gradual basis i.e. not “at every meeting”, as the Bank commented.

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Sharemarket Review and Outlook February 15-22 Brief opening remarks

An easing in European fears about the Greek financial situation; generally better than expected profit results and a surprise sharp fall in the unemployment rate were highlights of last week on the share market.

Despite these generally upbeat events the market was unable to respond in like manner and fell by 1.3% over the 5 trading days.

At the broader level it is significant to note that the level of the ASX200 Index at 4562 points on Friday is at a level which was last recorded on the way up in September last year.

In other words for the last 6 months the index has done nothing more than tread water.

At this level one could say that given the generally positive reports by companies to have announced results so far, the current situation may well represent opportunities for medium term investors.

Sharemarket Review and Outlook February 8-15-Brief opening remarks
Interest rates on hold, more positive profit results and profit upgrades than profit downgrades, a Greek malestrom late week, and a market which softened in consequence, sums up last week’s performance on the bourse.

But first the interest rate situation. For me three words encapsulate the Reserves Bank’s decision to leave rates on hold – “Surprising”, “Welcome”, but “Right”

Surprising
The “no rise” decision confounded commentators, who almost to a person, believed that a rise in rates was almost a certainty.

Welcome
However this decision should be welcomed, as it gives the Bank breathing space to access the impact of the three rate rises that occurred late last year.

But right
It was also the right decision, as the Australian economy as stated in this column last week, is ticking over “reasonably well”, but is not going “gangbusters”.

But for investors, the key point to bear in mind is that come December this year, official interest rates are likely to be 4.5-5%-The silver lining to this level is that it will reflect an economy which is improving. steadily

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“Where to for our share market this year?.”

There’s an old saying in the market that “as the first week and first month of January go, so goes the year.”- But this year we saw a strong first week but a decline over the month as a whole- no lead here! –So let’s revert to the tried and true.

On this tried and true tack then, the underlying economic fundamentals and the sentiment that pervades the marketplace generally, both in Australia and around the world, are decidedly more positive now than was the case twelve months ago.

While the Australian economy is ticking over quiet well, the American economy is still fragile, albeit showing more positive than negative movements in the wide range of economic indicators.

But reverting to the here and now, during last week the market was impacted by international events, particularly worries about the sustainability of China’s economic growth, and American financial issues.

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Major Events For This Week
The lead up to Christmas has continued the excitement and surprises which have characterised the better part of this year.

The week started with the AMP and AXA French parent increasing their offer for AXA/Asia Pacific which appeared at that stage to have a good chance of success.

As we all know now this offer was later trumped by the National Australia Bank.

Also on the corporate front we saw the capital raising by Woodside whereby they raised $2.5 billion in an underwritten renounceable entitlement offer, to be used to strengthen Woodside’s balance sheet and increase its liquidity in preparation for further liquefied natural gas development in the Pluto region.

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Economic and Sharemarket Outlook and Review 2009-10
Some investors might describe the travails of the last year or so on the sharemarket, like going “To Hell and Back”- to borrow the term from the title of a Frank Sinatra/Audie Murphy film of the1950's


Indeed and somewhat incredibly, while the market dropped 55% from the high point in November 2007 to the 6th March low this year, it then experienced a miraculous transformation and has risen by almost 50% since then.


But looking ahead, with the economy now expected to triple in growth from less than 1% this year, to around 3% next year; with inflation being largely irrelevant; and with interest rates likely to continue to remain low, albeit increasing over the course of 2010 to around an official rate of 4-5%, the fundamentals for continuing growth in the sharemarket look positive.


It should be remembered that even if interest rates do increase next year it simply means that the economy is performing well - An economy performing well provides robust foundations for corporate profit growth and hence enhanced sharemarket prices.


Finally some investors may be familiar with the 80/20 rule. As far as the market is concerned we’ve spent the last 2 years going down which could represent the 20%, and so we could look forward to the next 8
years (or the 80%) going up - Of course it won’t necessarily be exactly that, but you can get the picture of what I am saying.



To sum up, and with the perfect vision of hindsight, 2009 has provided some of the best opportunities to buy good value stocks, that we’ve seen since the recessionary aftermath of the 1987 sharemarket crash. -But as the saying goes “its never too late for a good thing,” particularly as the ASX 200Index is still 33% below its November 2007 high!.


Economic and Sharemarket Outlook and Review 7-14 December

An ultra quick recovery from the Dubai financial ructions last Friday week; upbeat commentary by Australia’s leading retailers Harvey Norman, David Jones and Metcash; and an iconoclastic Reserve Bank again defying tradition and convention, were highlights of last week on the market.

Amid all this news the market bounced back well from the Dubai setback and moved up 2.8% over the 5 trading days. However, and as has been commented in recent reviews the 7% average monthly growth rate in the ASX share 200 index in the 7 months between March and October simply could not go on unabated. Since mid October the market has consolidated which in fact is a very healthy development.

To put things into a longer term perspective the index is now up 35% since this time last year, up 29% so far this year, but still a substantial 44% lower than the all time high of 6851.5 recorded on 1st November 2007.

On the broader economic scene, a surprise to some was the Reserve Bank’s decision to defy convention and raise official interest rates for the third month in a row to 3.75% - This is the second time the Bank has defied convention following the unprecedented interest rate rise it announced during the 2007 Federal Election Campaign.

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Weekly Review 30 November – 7th December 2009
Further healthy consolidation in the market, upbeat comments by BHP and major retailers Harvey Norman and Woolworths, together with mixed economic data, were major highlights of last week on the market.

But a wet blanket hit the market on Friday, with Dubai World’s debt deferral announcement which caused more than a few shivers—albeit that the extent of the broad scale sell-off created excellent buying opportunities, particularly in stocks which have little or no exposure to the Middle-east.

As was noted in last weeks review, the market overall has taken a deep breath over the past few weeks, which, in view of the hectic pace for the most part of this year is a welcome sign.

Although the market retreated by 2.5% over the last month, it still remains 27% higher than it was at the end of last year, and up a very striking 33% from this time last year.

Our recent experience contrasts with the US, where their Dow Jones Index has in fact risen by 6% over the last month, but is only 20% above this time last year.

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Economic and Sharemarket Outlook and Review 23-30 November 2009
Increasing stability and consolidation in the market – no change likely in interest rates, generally positive news from overseas and underwhelming announcements from local companies were highlights of last week on the market.

But an ability to shrug off negative news without adversely impacting the market is a significant differentiating characteristic of the market in November 2009 compared with 12 months ago. For instance, in the US, data on housing starts released last week, showed a fall of more than 10% for October compared with what was expected, yet this caused hardly a ripple on the Dow Jones Index.

Underlining signs that the market is consolidating on a more sustainable growth path, has been the huge fall in share price volatility recently. In the first fourteen trading days of November last year there were 9 days when the ASX 200 index moved by over 2% (mostly in even bigger downward moves) - compared with no such days so far this November.

This more stable performance of the market recently, is particularly evident over the last month when the market Index has eased by 3.2%, following the breakneck average monthly increase of 7% in each of the preceding six months.

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Economic and Sharemarket Outlook and Review 30 November – 7th December 2009
The G20 Finance Ministers’ recent commitment to maintain the global economic stimulus measures rekindled the fire under the share market’s performance last week, after a fairly comatose October.

Fuel to the market’s fire occurred with increased takeover activity involving AXA and AMP, and generally upbeat comments at a number of Annual General Meetings. The net result saw an increase in overall sharemarket prices last week by a very solid 2.5% which brings the rise so far this year to 27% and the increase since the low point on the 6th March to 50%.

Furthermore the various pieces of economic data released during the week did little to detract from the general consensus view that the economy continues to improve.

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Weekly Review 9th – 16th November 2009
“A return to something approaching normality” might be an apt description of the market’s recent performance.

Following the breakneck pace which has characterised the last six months, the ASX 200 Index has eased back slightly over the last month yet still remains 23% higher than at the end of last year and an amazing 46% up on the low point on the 6th March this year.

And so, a return to normality rather than a major reversal, is a more appropriate given that the underlying economic fundamentals for the market remain robust and on an improving trend.

This situation was re-emphasised by the Reserve Bank at its meeting last week when it advised that “economic conditions in Australia have been stronger than expected and measures of confidence have recovered.”

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Weekly Review 2nd -9th November 2009
A well earned breather after the hectic pace since March this year was the theme running through last week on the market.

The overall retreat for the week was 4.5% - the largest weekly fall since that fateful week of around the 6th March this year when the market reached its 2009 low point.

However for some time now I have been stressing that the market cannot keep increasing at its pace of the last 7 months. This pause is a necessary retreat from the recent rational exuberance.

To put things into context despite the fall last week the share price for BHP for example at around $38 is only where it was just 2 weeks ago and the same applies to CBA whose current share price is around $53. It needs to be remembered that the low share price for BHP was $20 on the 1st November last year and CBA’s was $24.03 on January 23rd this year.

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Weekly review 26th October – 5 November 2009-
An interest rate rise of 0.25% on Melbourne Cup Day?; a strong production report from BHP: impressive sales figures from Woolworth and a successful capital raising by up and coming iron ore developer//explorer Pluton Resources were among highlights of last week on the market.

But first the likely rate rise.

The minutes of the last meeting of the Reserve Bank board on 6th of October, which lifted rates by 0.25%, was the first I can recall where there was very serious (albeit polite) disagreement with the decision.

The concluding text contained two lengthy paragraphs enumerating reasons why there should be no change in interest rates!.

Such creative tension at the Reserve Bank Board level makes it likely that the usual scare mongering media headlines screaming about a “Big” (0.5%) rate rise on Cup Day will be wide of the mark.

Nevertheless investors should brace themselves for an official interest rate of 5% twelve months from now. But a lift in rates should be viewed favourably as this would indicate that policy makers believe that the economy is in a clear expansionary phase which had obvious benefits for ASX listed companies.

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Weekly Review 19-26 October 2009
A strong opening to the US third quarter reporting season, overlaid on favourable announcements at AGM’s fuelled the continuing rally on the Australian sharemarket last week.

For the statistically minded, the sharemarket performances over the last year are as stunning as they are intriguing. For Instance:-.
• The Australian ASX 200 Index fell 55% from November 2007 to March this year;
• But from March this year until last Friday we were up 52%;
• Yet we still remain 30% lower than our high point in November 2007..
• Put another way, the market can still increase another 40% before it gets back the 2007 high.- In short there is still some ground to make up.

Significantly the above performance of the Australian sharemarket bears a striking similarity the American Dow Jones Index- almost an exact replica.
In fact it’s up 53% since March, but also remains around 30% lower than it’s October 9th 2007 high.

Also of particular significance in the US market is the fact that the Dow Jones Index last week pierced the 10,000 point mark, the first time since October last year reaching this psychological barrier after several attempts.

While the sharemarket performance of Australia and the US are similar, their respective economic performances are strikingly different.

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Weekly Review 12 – 19th October 2009
It’s official. The economy is now out of intensive care and the “economic life support apparatus” or very low interest rates which have characterised the last 12 months can be gradually removed.

The first step in this process was taken last Tuesday when the Reserve Bank raised interest rates by 0.25% to 3.25%.

The net result is that come this time next year we may see the official cash rate at somewhere around 5%, after the Reserve Bank claws back the two “panic” reductions in interest rates of 1% each respectively on 7th October 2008 and 4th February this year.

If the pattern of previous years is to be repeated, we can expect that interest rate rises of around 0.25% will occur on a monthly basis for a few months, a pause, and then increases again on a monthly basis for a few more months. – With the next rise likely to be on Melbourne Cup day of 0.25%..

In an “upbeat” assessment the Reserve Bank believes that the economy is now improving to such an extent that by next year economic growth (annual % rise in inflation adjusted Gross Domestic Product) will be close to “trend growth” and inflation will be close to the target of 2-3%. The trend growth rate for the economy would appear to be around 3.5%.

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Weekly Review 5th – 12th October 2009
Interest rates war drums are now beating louder. The prospect of an interest rate rise, probably in November, looks more and more likely.

Reading between the lines of the statement by the Governor of the Reserve Bank Glenn Stevens to the Senate Economic References Committee last week it would not surprise to see an interest rate rise of between a quarter and a half a percent on Melbourne Cup day.

Support for this more aggressive stance on interest rate comes from the Governor’s comment that “at some point interest rates will need to move off their current unusually low levels as the recovery proceeds”, adding further that “if interest rates were kept low for too long it would create imbalances

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Weekly Review 28th September – 5th October 2009
Rip Van Winkle lives?

If Rip had woken up on Friday after having been asleep for the last 12 months, he may well have thought that nothing much has changed and that all was well with the world and the market. For example the ASX 200 Index last week hit a high of 4735.6, very close to the level as it was in the last week of September last year.

However we all know that over the last 12 months. the real world has been through what has been like that 1950’s Frank Sinatra movie “To Hell and Back,”

Indeed comparing now with 12 months ago is like comparing chalk and cheese. Now, we are solidly in an upward direction in both economies and sharemarkets around the world. Major economies are now showing positive GDP growth after substantial retractions earlier this year of between 6% and 12% in major developed countries e.g. USA, UK and Japan.

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Weekly Review 21-28th September 2009
Bernanke and Buffett comments and international optimism, set markets alight last week – although the government’s ultimatum to Telstra put a temporary dampener on its share price mid week.

But in an environment when most sharemarkets are enjoying a strong performance, it is very important to keep matters in perspective. For instance in calendar year 2008 the market as measured by the ASX 200 Index actually fell by 41.8%, but so far this year the market has recovered by only 25%, still leaving it one third lower than it was in November 2007.

And so, while the fundamentals are lining up for continuing growth in overall sharemarket prices, investors should temper their enthusiasm with the realisation that markets do not rise or fall in straight lines. Rather they will zig zag in either direction. But right now the economy is still in the early stages of recovery and accordingly the market looks set for several years of buoyancy.

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Weekly Review 14-21 September 2009
Unemployment on hold; retail sales and housing finance hesitate; ABB taken over by Canadian Viterra, Paladin’s huge capital raising, Metcash loses liquor distribution in Queensland and impressive debut by Carsales.com, were just some of the highlights of last week on the market.

But last week also was the week where psychological barriers were smashed. Figures ending in double zeroes seemed to have a mesmerising effect on investors and last week had a full share. We saw gold piercing the $1,000 US per ounce, the London FT 100 Index piercing 5,000, the New York S&P 500 piercing 1,000, the Nasdaq index piercing 2,000 and the Dow Jones Index approaching 10,000 points, while our ASX 200 Index looks longingly at 5,000 points.

And once again we have the market commentariat, calling for a lift in interest rates in the next couple of months following the unemployment rate remaining on hold at 5.8% of the labour force during August and buoyant results from confidence surveys.

Should the Reserve Bank act on this advice and lift interest rates before the end of this year, this in my view would be the third major mistake made by the Reserve Bank over the last two years, as the economy is only now just starting to recover. To raise rates prematurely would severely injure this process. The other two mistakes were the Bank’s decision to lift interest rates in February and March last year, when world wide financial markets were shaking, following the collapse of Bear Sterns in January, and sharp falls in major world markets in that same month. Yet our Reserve lifted rates twice in the next two following months, while overseas central banks were reducing rates.

While the unemployment rate thankfully did not increase during August, the number of persons employed on a full time basis did fall significantly while part-time employment actually increased. This points to a rise in what is called the level of underemployment, to 13.9% of the labour force in August - persons who are working part-time but would prefer to work longer.

Also on the economic front figures retail sales declined 1% during the month which followed a decrease of 0.8% in June but this followed very strong rises in the preceding 3 months. Over the year retail sales showed a very impressive increase of 5.9%. (Listed retailers including JB Hi Fi, Harvey Norman, Woolworths, Wesfarmers and David Jones have all reported robust trading information over recent past).

There was an abatement in housing finance commitments during the month of July, partly attributable to the trimming of the governments first home owners grant, however over the last year housing finance continues to exhibit an upward trend.

While still on the economic front, the National Bank’s Business Confidence survey and Business Conditions surveys painted an upbeat picture of the Australian economy.

At the corporate level, on Wednesday ABB Grain shareholders voted to accept the takeover offer by leading Canadian agri-business company Viterra. ABB shares were suspended from trading last Friday.

Metcash advised that it will cease supplying Woolworth’s subsidiary ALH Group Pty Ltd liquor requirements in Queensland when the existing contract ends on 30th June next year. Metcash advised that they have commenced strategic initiatives to replace some of the lost volumes and reduce costs accordingly.

Also Paladin Energy, a major mid capitalisation uranium explorer and producer, announced a $450 million share placement last Wednesday which represents 15% of Paladins’ issued capital. This raising follows the astounding and history making $90 billion secondary capital raisings by ASX listed companies since late last year.
Another major event on the corporate front which gives considerable confidence for the future growth and development of the market was the very impressive debut by Carsales.Com which finished the first day of trading at an impressive over 14% premium to its issued share price of $3.50.

As the sharemarket gathers momentum in terms of both activity and overall sharemarket prices, other Initial Public Offerings (IPO) are likely to come to the market- the most prominent of which includes retailer Myer which announced its IPO last Friday. Other possibles which may well be probables, include the de-merger of the paint business from Orica and the sugar business from CSR.

Looking ahead on the economic front there is not a great deal of data which is likely to drive the Australian market itself this week. On Tuesday we will see the minutes of the Reserve Bank’s meeting held earlier this month and data on dwelling starts and the Westpac leading indicator series. None of these pieces of information are likely to have a negative impact on the markets positive momentum.

In contrast, in the United States there is a large range of data which should have a much more substantial and significant impact on the growth and direction of their sharemarket. On Tuesday we have the Producer Price Index, on Wednesday retail sales, Consumer Price Index, Industrial Production and Capacity Utilisation together with the ABC Confidence Survey. This clutch of data is likely to confirm, that while the American economy remains unwell its health is steadily improving. Later in the week there are figures on housing starts and the Philadelphia Federal Reserve Board survey of economic conditions.

In conclusion provided that the Reserve Bank does not prematurely cut short the insipient economic recovery by raising rates before the end of this year, the positive trend in economic activity and the sharemarket is likely to continue. However, over the course of the next 18 months we are likely to see the Reserve Bank lift official interest rates by between 1 – 1.5% to bring the Official Cash Rate to what is called a more neutral setting, as described in last weeks review. Nevertheless so long as the economy continues to recover robustly over the next year, these rises in rates should not deter the expansion.

Finally, it now seems clear that forecasts made by the Treasury of an unemployment rate of 8.25% in 2009/10 is now likely to be far wide of the mark. What this shows to investors is that projections and forecasts made by even the most prestigious of organisations, should not be uncritically accepted.


Weekly Review – Week 7-14 September 2009
No recession, let alone a technical recession, and interest rates on hold were the dominating features determining the direction of Australian sharemarket prices last week.

However gyrations shook our market mid week in the wake of around 2% falls in major indices in the US on Tuesday, but we regained some composure on Thursday and Friday. In summary over the week as a whole our market eased down by 1.2%.

But more significantly, since the low point of the market on the 6th March this year our main sharemarket index is up by an astounding 41%.

The size of the rebound in the Australian market has meant that all the key forecasts as shown on page 3 of this review are looking somewhat forlorn at this stage.

Significantly “The Age consensus” forecast is looking decidedly “out of the money” at this stage, in forecasting the ASX 200 Index at 4057 by years end which in fact was even revised downwards in June this year! Certainly one cannot expect that a 41% rise in the main index will be repeated over the course of the next six months, but the momentum for continuing improvement in the market seems pretty much in tact.

The main corporate events last week related to an upbeat trading report from the ANZ. The bank advised that their underlying profit is in fact tracking “slightly above the comparable period in 2008”, and that “impaired loans/facilities and derivatives were up 7% for the June quarter, which is a slower rate of increase than experienced in each of the previous two quarters.”

This assessment by the ANZ Bank flowed on to positive movements in the other three major bank’s share prices mid week.
Another significant corporate event was the result of one of the many capital raising efforts which have been announced over recent times. Specifically, Virgin Blue advised that it had successfully completed the retail component of their non-renounceable entitlement offer. The demand in fact was so “overwhelming” that Virgin Blue advised that they will scale back applications for those who applied for additional new shares, to “ensure fairness among all shareholders.”

At the macro level figures on overall economic activity in Australia which were released last week showed a slight lift in Gross Domestic Product of 0.6% in the June quarter – it’s great that we didn’t go backwards, but the rise was still meagre in absolute terms- we’re on the right track but there’s still a long journey ahead. The sharemarket’s recent performance predicted this outcome and should continue to do well as the economic momentum gathers speed.

But let’s not get ahead of ourselves. The almost euphoric headlines in the daily newspapers are hard to fathom, given the fact that the increase was only 0.6% over the quarter, and only 0.6% up over the year as a whole! The main contributor to the outcome was, not surprisingly, private consumption expenditure which increased by a strong 1.9% for the quarter - influenced primarily by the $900 cash payment to many Australian tax payers during the quarter itself. Such a strong increase in consumer expenditure is unlikely to be repeated in this September quarter.

Accordingly one should not get too carried away by these economic growth figures, as we managed to extract ourselves from the unprecedented economic and financial turmoil over the last 12 months.

On the day before these economic growth figures were released, we had the decision by the Reserve Bank to leave the official interest rates unchanged at 3%. However in its statement the Reserve Bank alluded to the recoveries taking place in both the domestic and international economies, but noted that local business borrowing remained subdued.

The concluding comment by the Reserve Bank that “the present accommodative ….. monetary policy remains appropriate for the time being, but the Board will adjust monetary policy (i.e. interest rates) so as to foster sustainable growth and economic activity and inflation consistent with that target,” suggests to me that official interest rates should remain on hold for the rest of this year, as the Bank will be primarily focused on ensuring that economic activity continues to grow in a sustainable fashion, yet it will keep a careful watch on inflation.

Indeed given the fact that Australia is only in a very incipient stage of recovery, to increase interest rates in the next few months would be akin to “getting belted behind the knees with a base ball bat as we get ourselves up off the canvas”. In other words it would be a case of jumping at shadows.

However my view is that interest rates will be raised during 2010 and 2011 by between 1 and 2% to an official interest rate level of around 4–5% which the Reserve Bank would probably call a “neutral level”. A “neutral level” has been described as a level of interest rates “which is consistent with stable inflation and output growing at its potential rate.” If one can anticipate that economic growth will be gathering momentum next year, then inflation is likely to rise further.-a combination of circumstances providing the pre-conditions for the Reserve Bank lifting rates on a consistent and gradual basis next year.

It is also significant to note in this respect that the average official interest rate over the last 12 years was about 5.6%. Currently the official interest rate is 3%.

Other important but more anecdotal pieces of economic data released last week related to the Australian Industry Groups Services and Construction Sectors - both of which showed an improvement in conditions in the June quarter, albeit that the levels remain low.

Looking ahead on the economic front next week will see the ANZ Bank job advertisement series out on Monday, and the National Bank’s Consumer Confidence and Conditions surveys are due on Tuesday. Very important figures on retail sales and home and investment lending figures will be out on Wednesday while a key determinant of how the economy is tracking, in the form of employment and unemployment figures will be out on Thursday. It can reasonably be expected that the upward movement in the unemployment rate is likely to have continued in August, from last month’s level of 5.8%.

In the United States there is a paucity of data due out. The only important pieces of information are Consumer Confidence surveys. The ABC Consumer Confidence figures are due on Wednesday and the highly respected University of Michigan Confidence survey on Friday.

In conclusion, and as has been stated on many occasions in this review, the Australian sharemarket continues to defy most pundits. Given the fact that the market can still increase another 50% before it gets near the level it was almost two years ago, coupled with a strengthening in the underlying economy, suggest that the continuing robustness in the Australian sharemarket is likely to continue over the foreseeable future.




Weekly Review 31 August – 7 September 2009
“No real surprises” has become the hoary comment generally reserved for the last week of the reporting season, and last week was no exception - indeed, it turned out to be the most lack lustre of the reporting season – There was a fairly even balance between the “as anticipated” or “disappointing” results, as there were those that could be described as “impressive”.

With no substantive lead coming from the domestic arena the impetus for the market’s performance last week came from offshore.

Clearly the dominating influence was the reappointment of the US Federal Reserve Board Chairman Ben Bernanke. President Obama gave a well deserved accolade to the Chairman, when he commented that “Ben Bernanke approached a financial system on the verge of collapse with calm and wisdom, with bold action and “out of the box” thinking, that has helped put the brakes on our economic freefall.”

In retrospect, Ben Bernanke has shown a creativity and resolve few had previously contemplated. Ben Bernanke, a self described “Great Depression Buff” is a qualification which has served him particularly well during the world’s most serious financial crisis in many years. His creativity in pumping money into the economy, and purchasing mortgage backed securities and treasury securities has proved to be a most apt response to a very difficult situation.

On the day before Ben Bernanke was reappointed a comment which he made provided fuel for the American sharemarkets strong advance mid-week when he stated that “prospects for a return to growth in the near future appear good” in a speech to Kansas City FED’s “Annual symposium at a most unlikely named venue in “Jackson Hole Wyoming.”

Reverting back to the local scene, one of the stand out events of last week was Woolworths announcement of a takeover of Danks Holding Ltd the owner of Home Timber & Hardware, Thrifty Link Hardware, and Plants Plus Garden centres, which together comprised over 1400 outlets. Also, Woolworths announced that they have negotiated a joint venture agreement with leading US home improvement retailer LOWE’s which will support Woolworths plan for Destination Home Improvement.

The challenge for Woolworths of course is to secure large sites to be a major competitor to the established Bunnings Warehouse outlets.

Another significant event last week was the decision by the Australian Government to provide the Australian Securities and Investments Commission with the responsibility of supervising real time trading on all of Australia’s domestic licensed markets. ASIC will then be responsible for both the supervision and enforcement of laws against misconduct on Australia’s financial markets. The regulation of listed companies will remain with the Australian Stock Exchange.

This decision flags the increased possibility of competitors to the Australian Stock Exchange, entering the “stock exchange market” sometime next year, after ASIC assumes its new responsibilities.

Another significant event during the week was the announcement of capital raisings by both Connect East and Healthscope - specificailly a $421 million rights issue by Connect East and a $140 million Institutional Placement by Healthscope. Both capital raisings are to be followed by Share Purchase Plans which provide retail investors with a chance to participate in shares in those companies on the same terms as those available to institutions – at last fairer deals for retail investors are becoming more prevalent!.

Reverting to the generally lack lustre company reports last week there were only six major ones which could be considered to be impressive. These included , Healthscope, Tatts Group,,Transfield Services, Wotif.Com, Woolworths and to a lesser degree under the circumstances Seek. Other major company reports which generally failed to impress came from Transpacific Industries, Aristocrat Leisure, Flight Centre, Asciano and Suncorp.

On the local economic front surprisingly good, and much better than expected capital investment and construction figures increase the likelihood that the positive momentum of economic activity generally will continue.

Looking ahead there are some important pieces of information scheduled for release locally and these include building approval figures on Tuesday, together with the Reserve Banks’ decision with interest rates. It is expected that the Reserve Bank will not change official interest rates from the 3% level which it decided upon last April. However it now seems to be virtually certain, (given the statements which have been made by the Governor of the Reserve Bank and its senior officials in recent weeks), that official interest rates in Australia will be increased to what could be considered to be more “normal” rates of 4-5% some time next year and into 2011.

Following the interest rate decision on Tuesday we will have figures on economic activity (Gross Domestic Product) out on Wednesday. It is anticipated that the June quarter will see an increase in GDP following on from the increase which surprised some, for the March quarter –2 quarters of positive growth!

Looking abroad in United States, there is the usual flow of data which is likely to have an impact on the sharemarket. These include the Chicago Purchasing Managers Report on Monday (which gives an indication of the US industrial sector’s activity). On Wednesday the Institute of Supply Managers Manufacturing Index is due (which should confirm the Chicago Purchasing Managers Report), along with vehicle sales with Non Farm Productivity; on Thursday figures on factory orders, while on Friday very important figures on the unemployment rate and average weekly earnings are scheduled. The possibility of the American unemployment rate increasing towards the 10% rate cannot be ruled out at this stage. Last month the figure was 9.5%.

In conclusion if one looks at the history of sharemarket movements against Australia’s macro economic background, it can be reasonably anticipated that the next few years should see a generally favourable environment for sharemarket prices. Certainly if one applies the well worn 80/20 rule and if one assumes that for the last two years we have seen a very febrile sharemarket, there is reason to anticipate that the next six to eight years may well see the strengthening momentum of the market continue. However investors should not expect that the improvement in the market will be along a straight line. There will, of course, be periods where the market will zig zag or saw tooth on its way up. However the “doomsayers” and the “Armageddon merchants” would appear to have been exorcised from the market at the moment - but “as sure as eggs” they will pop their heads up the next time the market shows a fall of 2 or 3% on its way up.




Weekly Review 24-31 August 2009
A healthy breather from the hectic pace of the last month is one way to describe last week on the market

While the market actually eased last week, it is still up around 7% since mid July - a rate of increase which cannot to be expected to be repeated with each passing month.

There have been many highlights of recent market activity, but among them was the slew of company reports last week which were either in line with or exceeded expectations, and particularly well in some cases.

Indeed the trend of results has generally surprised most, with the maxim “no news is bad news” being the mantra which runs through recent market behaviour.

Among the stand out company performers which reported last week and reported profit growth which exceeded expectations, were Downer EDI, CSL, Origin Energy, Ansell, The Reject Shop and Newcrest Mining.

But a number of other stocks, while not necessarily reporting profit growth but which nevertheless exceeded expectations, included Woodside Petroleum, AMP, Amcor, Brambles, James Hardie, and United Group among others. .On the other hand and among the big stocks RIO and ASX were on the disappointing side of being “in –line”.

Significantly one of the main factors that has resulted in positive share price movements from reporting companies has been comments made in the outlook part of the reports. Variously, comments such as “a challenging or volatile future”, but with a general bias towards an “expected pick up in activity” as the next year unfolds appeared in the reports. – If realised such expectations are likely to positively impact future results.

To illustrate the favourable sharemarket reaction to some of these reports, last week saw share price rises of over 5% in the following reporting companies; Downer EDI, James Hardie, United Group, Amcor, Woodside Petroleum, Brambles, Iluka, Transfield Services and QBE.

More particularly in outlook commentaries where companies have significant United States exposure, reference was made to “improvement” in activity, albeit from low levels.

On the Australian front, the dichotomy in expectations between our two official economic agencies, namely the Reserve Bank and Treasury, was highlighted last week. The Secretary of the Treasury Ken Henry, in an address to the Australian Industry Group, emphasised the fact that we were not yet out of the woods, and the possibility of a secondary fall back in activity could not be ruled out. Specifically he stated that “we would want to be a little careful, not to prematurely declare that the war is over.”

On the other hand the minutes of the last meeting of the Reserve Bank on the 4th August were released and the content of the minutes was decidedly upbeat. In particular so upbeat was the tenor of the minutes that one can now rule out any fading hope of interest rate cuts this year. The likelihood of an increase in interest rates early next year is now virtually certain, which could well be 1%-1.5%.

However there are rwo saving features as far as future interest rate rises are concerned. The first is that the next rise may be delayed, as the Reserve Bank ponders whether the recent buoyancy in the economy might have been due to the temporary effects of earlier fiscal stimulus.

The second limiting feature in future interest rates rises , is the fact that staff of the Reserve Bank now believe that underlying inflation will fall to about 2% around late 2010 early 2011. Accordingly there will be no push for higher interest rates on account of an upsurge in inflation, although the Bank may well seek to return interest rates to what could be considered as more “normal” levels at around 4 - 5%.

Also, and in contrast to the Secretary of the Treasury’s comments, the Reserve Bank have now significantly lifted their forecasts of economic growth (or increases in GDP) from a decline of 1% this year to a rise of one half of one percent - a significant and substantial move in a positive direction. If the Reserve Bank’s expectations are met this can but only be positive for maintaining the future momentum of the sharemarket.

Looking ahead into the last week of the reporting season there is a wide range of major companies announcing results. These include Worley Parsons and Virgin Blue on Monday; Aristocrat, Fosters and Suncorp on Tuesday, Connect East, Healthscope, Transurban, Transfield Services and Westfield on Wednesday; Ramsay Healthcare, Supercheap Auto, Tabcorp, Toll, Tatts, Woolworths and GPT on Thursday, and rounding off the end of the reporting season we see as usual, Harvey Norman reporting on Friday.

On the economic front there is very little in the way of economic data coming through. The only exception is motor vehicle sales which are expected on Monday, but these are expected to be fairly muted given the cessation at end June 2009 of the tax advantage for motor vehicle purchases.

In the United States there are a few pieces of economic data which will be important for shaping the market’s movement. These include Consumer Confidence on Tuesday, very important data on Durable Goods orders on Wednesday, New Home Sales on Thursday while the “second estimate” of GDP growth for the second quarter of this year will be out on Thursday and this is expected to confirm earlier estimates that the annual contraction in Gross Domestic Product in the United States has eased markedly to only around 1%, compared to a 6% contraction in the first quarter of this year. Rounding out the week we see the University of Michigan Confidence Index on Saturday our time.

In conclusion, and as has been stated in many weekly reviews. the momentum of the market is “soldiering upwards”-albeit that progress is likely to be at a slower rate than in the recent past. If expectations of a moderate expansion in economic activity in a low inflationary environment. are realised, this should be very positive for company earnings. as we look ahead over the next 12 months. Accordingly increases in the ASX 200 Index of up to 20% over the next year cannot be ruled out of court- For instance even if the market increases by 20% next year, this would still leave it almost 20% lower than the high point reached in November 2007! (assuming that the ASX 200 Index finishes this year at 4600).


Weekly Review 17-24 August 2009
What a week it was!

Three companies, Commonwealth Bank, BHP and Telstra with a market capitalisation equivalent to almost one quarter of the Australian market reported last Wednesday and Thursday – and their results either were in line with, or exceeded expectations in the case of the Commonwealth Bank.

In the current environment when almost “no news is bad news”, the results went down well.- The share prices of all three companies increased subsequently (CBA quite sharply), even though the profit outcomes themselves were workmanlike rather than particularly flattering, in an ultra turbulent financial year. .

In respect to the CBA its reported profit was down, but only by 7%, and the dividend reduced by 25% to $1.15 for the half year- but even at this lowered amount still represents a most attractive fully franked dividend yield of close to 5%.

BHP’s result was a tad better than expected, even though it delivered a profit decline of 61%. The proffered reason for this profit performance related to the 50% and 90% decline in commodity markets in the first half of the financial year, which have since recovered well. For the long term, BHP said that they continue to expect strong growth in demand for commodities.

Telstra’s result was positive with profit after tax up by 10.3% over the financial year and dividend was maintained at 14 cents for the half year. Also Telstra confirmed that they expect to see a stunning free cash flow of between $6-7 billion by 2009/10. The major growth for Telstra continues to be in the mobile and the fixed retail broadband areas, with fixed line telephone services continuing to be a drag on the overall result. Telstra also said that while they face “significant challenges in the coming year… (they) are well positioned to face those challenges. The company also advised that they are now engaging constructively with the Federal Government on the National Broadband Network.

Other companies to make reports during the week were Bendigo Bank which produced a report which was disappointing but not materially different to market expectations. Computershare’s result was very positive in a particularly challenging share market environment. Flight Centre’s unaudited results were also satisfactory in a difficult environment, Leighton;s profit was the 3rd largest ever, Coca Cola Amatil’s result impressive , while a shining light was JB Hi Fi, which produced a glowing tri-fecta, with sales up 27%, profit up 45% and dividend up 69% compared with the last financial year. Primary Healthcare also produced a result again proved to be better than market had been anticipating.

On the overseas front we saw continuing strength in the American share market, fuelled by the late week results of the Federal Reserve Board’s (FED) meeting. The FED, in an upbeat commentary advised that they are looking for a “gradual resumption of sustainable economic growth in the context of price stability”. Also while official interest rates in the United States are still almost as low as possible at between 0 and 0.25%, the FED reiterated its position that these low levels of interest rates are likely to continue for “an extended period” – i.e. in layman’s language between six months and one year.

On the economic front in Australia figures on housing and lending finance were strong in the case of the former, and weak in the case of the latter.

One indicator that may start to get the “amber lights” flashing was average weekly earnings which showed a rise of 5.9% over the year to May. This data may cause the Reserve Bank to start cranking up its “inflation worry cycle” to deliver a lift in interest rates early next year.

Looking ahead there is a veritable talk fest on the economy this week. Specifically speeches by two Deputy Governors of the Reserve Bank and the Secretary of the Treasury on Wednesday, while on Thursday the Reserve Bank’s Head of Economic Analysis will speak. It will be particularly interesting to see how economically consistent each of these four major speeches actually turn out to be, as lately the Reserve Bank has been more sanguine about the economic outlook than Treasury. The only relief from this talk fest will be the Westpac leading indicator figures out on Wednesday.

In the United States on the other hand, there is a range of important data to be released, which on balance, should confirm the generally positive economic prognosis provided by the Federal Reserve Board. On Monday the New York Empire Manufacturing Index is due out, inflation figures in the form of the Producer Price Index on Tuesday together with figures on housing starts, Consumer Confidence figures will be out on Wednesday, while Initial Jobless figures are due on Thursday, Leading Indicators on Friday and existing home sales on Saturday.

Next week concludes the American reporting season with a clutch of major retailers to report, including Home Depot, Target and Sears. In Australia major companies to make reports during the week include Worley Parsons, Aristocrat, Rio Tinto, Connect East, Transurban, Ramsay Healthcare, Tatts and Sonic Healthcare.

In conclusion, the market continues to defy the odds and the “no news is bad news” mantra, continues to be the flavour of the moment. Indeed since the low point on the 6th March this year, the ASX 200 Index is up 40% and since the end of last year up by 25%, an extraordinary effort.

As was noted last week one cannot expect that this rate of improvement can be sustained. Nevertheless the upward momentum of the market should continue, albeit that in the short term share prices are likely to zig-zag on the way up.
Weekly Review 10-17th August 2009
The relentless momentum of the market continued last week with the ASX 200 index up by 1% to bring the rise since in this financial year alone to over 8% and an incredible almost 36% since the low point on the 6th March this year.

One thing investors can be sure of in this environment however is that a 36% increase in share prices every five months simply cannot continue. However that’s not to say that the market is not being underpinned by solid and improving economic dynamics which provide impetus to the markets advance.

Nevertheless a rise in the index of 20-25% this calendar year would be a good, but not extraordinary result given improving economic fundamentals. In other words the ASX 200 index could finish this year at somewhere between 4450 and 4650 - yet this would still be about 35%lower than November 2007!.

However it is revealing to note that this overall growth in the market dues mask extraordinary rises in some of the biggest blue chip stocks listed on our market. For example so far this year Rio is up by 105%, Commonwealth Bank 53%, Wesfarmers 42%, Westpac Bank 34%, ANZ Bank 27%, BHP 24% and National Bank up by 21%.

At the broader macro level we saw some solid economic data and commentary. On Tuesday the Reserve Bank left interest rates unchanged, citing the stabilisation now apparent in the global economy, and the fact that economic conditions in Australia have been stronger than expected. The net result was that the Bank felt no pressing need to change its current “no action” status in respect to interest rates.

Later last week we saw the labour force figures which surprised most, as the unemployment rate remained unchanged at 5.8%.

Particularly surprising was that while full time employment fell by 16,000 the level of part time employment actually increased by an astounding 48,000 – a situation which may reflect the fact that displaced full-time workers are now returning to the work force, not on a full-time basis but rather as part-timers or consultants.

Time will tell if the July result can be repeated. Certainly if the unemployment rate can be restrained at around current levels, the likelihood of a cut in interest rates is becoming less and less, and the possibility of an interest rate rise early next year more likely.

Elsewhere on the economic front there was the Australian Industry Group surveys of the services sector, manufacturing, and construction sectors which showed that in the services area there had been an easing in the pace of contraction over recent months, manufacturing showed that the nascent improvement in conditions is also becoming more broadly based but construction remains soft.

Not surprisingly official Australian Bureau of Statistics figures on retail sales showed a seasonally adjusted fall of 1.4% in the month of June, but over the quarter as a whole there was a strong rise of 2%, influenced no doubt by the Commonwealth Government grant of up to $900 to a large number of tax payers during April and May.

On the corporate front the first week of the company reporting season (including significant corporate announcements) could be described as having achieved a credit average.

Firstly, David Jones 4th quarter sales figures were satisfactory although somewhat less than the market had been anticipating; a smaller food retailer Retail Food Group produced a particularly pleasing result with profit rising by a very strong 33%; GrainCorp announced that the company had upgraded its profit forecast for the financial year ending September this year,and ASX Asia Pacific delivered a satisfactory result and , advised that the economies in many of the countries in which it operates are likely to grow faster than world averages.

Finally the ANZ Bank announced that it has acquired some Royal Bank of Scotland South East Asian (Singapore, Hong Kong, Taiwan and Indonesian) businesses for $687 million, which the bank advised, creates a new platform for retail and wealth business in Asia.

On the other hand Tabcorp’s results were satisfactory although there was some disquiet about the increase in future capital expenditure with Star City Casio in Sydney; Aristocrat announced a significant impairment to its profit outlook and Bendigo & Adelaide Bank advised that its exposure to borrowers in Great Southern Plantation’s managed investor scheme is approximately $550 million and it is raising a provision of $20.2 million for its 30th June 2009 result.

Looking ahead on the corporate front, which is the first major week of Australian company reports, we will see JB Hi Fi, Commonwealth Bank, Leighton Holdings, Ansell and Bendigo & Adelaide bank produce their full year results.

On the economic front we will see figures on home loans and investment loans on Monday, the Wage Cost Index on Wednesday, Average Weekly Earnings on Thursday and the Governor of the Reserve Bank will give his semi-annual address to the joint parliamentary economics committee on Friday. The improving trend in home loans and investment loans is likely to continue.

In United States there is a handful of important pieces of data including non-farm productivity on Tuesday, Consumer Confidence on Wednesday, the Federal Reserve Board’s decision on interest rates on Thursday (which are expected to be held at between zero and 0.25%) while more importantly, figures on inflation and industrial production will be out on Friday. It is reasonably expected that the industrial production figures in the United States will continue the improving trend of recent months.

Also this is the last week of major company reports in the US, with Macy’s, Dr Pepper, Estee Lauder, JC Penney and Nordstrom are producing their results.

Perhaps the major reason for the improvement in the American sharemarket has been the fact that by in large this quarterly reporting season for corporate results has been decidedly better than the worst fears.

In conclusion and as has been stated on previous occasions in this review, the momentum for the market is decidedly positive. However investors need to view the market in perspective, and it is unrealistic to expect that the rate of improvement that we’ve seen recently will continue, but before this year’s out we could well see an increase in the overall market of around 20-25% in sharemarket prices as measured by the ASX 200 Index.


Weekly Review – 3-10 August 2009
The tone and the text of the address was decidedly positive as far as the economy is concerned as opposed to the much more guarded assessments previously provided by the Reserve Bank.

Indeed the Governor’s speech was punctuated by upbeat comments. Specifically the Governor referred to “the recovery in Consumer Confidence”, the “slower than expected rise in unemployment”, the “pick up in the demand for housing finance due to lower interest rates” and the fact that “the down turn we are having may turn out not to be one of the more serious ones of the post war era”. However, in an endeavour to hose down overly exuberant confidence, the Governor also stated that “it would be a mistake now to lapse into the comfortable assumption that easy prosperity will come our way.”

A metaphor which neatly encapsulates the speech could well be “We are now starting to see some sunlight through the trees, but we are not out of the woods yet”.

Still on the upbeat economic front figures on building approvals were released last week which showed a substantial rise of 9.3% in the number of total dwelling units approved. Indeed if one looks at the graph of building approvals over the last year it looks very much like a sharply inclined ‘V’ curve.

Last week also saw the first June year ending reports by listed companies. The first off the block was that from GUD which is an industrial company involved in consumer products generally. The results were better than many had anticipated with underlying profit down only 1.2% in probably what has been one of the most difficult financial years in recent memory.

Coal & Allied produced their half year report to June which was very strong, with profits in the 12 months to the half year ending in June up by 65.9%, largely as a result of increase in revenue due to higher coal prices and the benefits of a weaker Australian dollar (against the US dollar).

Also in the generally positive vein was the Annual General Meeting by Macquarie Group, in which the acting Chairman Kevin McCann concluded that “while it was too soon to call an end to the recent period of extreme market volatility, signs of increased market confidence were beginning to emerge.”

Alesco also reported last week for the year ending 31 May and again the results were better than anticipated, although Alesco’s business had been significantly impacted by the difficult economic conditions over the past 12 months. But the company commented that their businesses were better positioned to face the current challenging environment and improve when market conditions recover.

Another event of significance was the announcement by the National Australia Bank that they had agreed to acquire 80.1% of Goldman Sachs JB Were’s Private Wealth Management business in Australia. The new business will be branded JB Were with Goldman Sach’s JB Were retaining the remaining 19.9%. NAB will outlay $99 million for this particular acquisition.

Also BHP announced that it had agreed with a range of iron ore customers for the 2009 contract year in relation to price negotiations for iron ore and has settled 23% of total iron ore volumes at an agreed annual contract price.

Virgin Blue, somewhat belatedly, has joined the “capital raising party” with a fully underwritten $231.4 million equity raising which comprises an institutional placement of $21 million and a 1:1 Non-Renounceable Pro Rata Entitlement Offer to raise approximately $210.4 million at an offer price of $0.20 per share – At last, retail investors are getting a “fairer shake” of the capital raising pie, with increasing use of Share Purchase Plans and rights issues. This is in contrast to the previous practice by some listed companies to raise money through placements alone, which effectively “froze out” the retail investor!.

Looking ahead on the corporate front we are now starting to see the corporate reporting season “cranking up” with Seven Network’s final year’s figures scheduled for release on Wednesday, Alumina’s interim result on Thursday, Fortescue and Tabcorp’s final year’s result on Thursday and ResMed’s final results on Friday.

Also the reporting season is continuing in the United States with some major companies to announce results, including Cisco systems, Duke Energy, News Corporation and Procter & Gamble and Thursday and American International Group, and Edison International on Friday.

On the economic front here in Australia the highlight of the week will be the Reserve Bank’s decision on interest rates on Tuesday which are almost certain to leave official interest rates unchanged at 3%. On Monday the ANZ job advertisement series will be due out while on Thursday very important figures on employment and unemployment will be released. Also, and as has been indicated in previous weeks reviews, should unemployment show a sharp increase in any one particular month, or soon approach a level of about 6.5%, the Reserve Bank may well be inclined to cut rates by another 0.25%.

In the United States on Tuesday we see the Institute of Supply Management’s manufacturing Index as well as motor vehicle sales, on Wednesday home sales, on Thursday the Institute of Supply Management’s Non-Manufacturing Index, and factory orders and initial jobless figures. On Friday figures on unemployment are due out and it can reasonably be expected that there will be a reasonably small increase from the 9.5% level which was recorded in June.

In conclusion the improvement in the sharemarket has now been consolidated with a rise since the low on 6th March this year, now an incredible 35%. Indeed the contrast with this period last year is quite striking – indeed almost the complete opposite! . So far this financial year the ASX 200 index is up by 5% whereas during the same time last year the index was down 5%,- over the last three months the index is up 11%, whereas last year over the same period the index was down 11%. Finally should reports by listed companies over the next few weeks prove to be better than anticipated, there is no reason to expect that the overall momentum for an increase in overall sharemarket prices will br blunted, , and my own forecast for the index by the end of the year of 4450 may turn out to be conservative.

“We are now starting to see some sunlight through the trees, but we are not out of the woods yet”. This could well be a metaphor for the recent speech by the Reserve Bank Governor Glenn Stevens to the Australian Business Economists luncheon last Tuesday.

Weekly Review – 27 July – 3 August 2009
Interest rates in the US likely to remain low for an “extended period” while the interest rates outlook in Australia is somewhat more equivocal. These conclusions are based on the minutes of the July meeting of our Reserve Bank Board and testimony given by US Federal Reserve Board Chairman Bernanke to the US Congress last week.

While the minutes of our Reserve Bank’s last meeting added little to the brief statement following that meeting, they did repeat the expression that “the current inflation outlook affords scope for some further easing of monetary policy (i.e. lower interest rates), if that were needed to give further support to demand at a later stage.”

Significantly on the day after these minutes were released the Consumer Price Index came out which showed that headline inflation increased by 0.5% providing an increase over the year to the June quarter of 1.5% which is the lowest annual rate for many years.

However the two “underlying rates” which the Reserve Bank also watches namely, the “Weighted Median” and “Trimmed Mean” continue to show annual increases of above 3.5% - albeit that these two measures have shown declines on an annual basis over the last year and a half. Taking account of prevailing economic imperatives, a reasonable prognosis would be that if the Reserve Bank sees the unemployment rate increasing towards 6.5% then the Bank maybe more inclined to cut rates further, even if inflation remains at its current level.

In addition to advising of a flat inflation environment over the medium term and no increases in interest rates for an “extended period”, Governor Bernanke also outlined the so-called “exit strategies” from the substantial financial accommodation, which has been provided to financial institutions in the US over the last year. In brief, Governor Bernanke advised that among other things, the strategy would consist of paying interest on deposits that institutions have with the FED, and by selling securities from the FED’s portfolio.

In Australia, analogous economic data to the CPI release last week, was the Producer Price Index which showed an annual increase of a small 2.1%. This result indicates that inflationary pressures are not high at the “input level” for Australian businesses.

Another important indicator of the recovery in demand in the Australian economy was the very positive reading of new motor vehicle sales for the month of June. These figures showed that on a seasonally adjusted basis motor vehicle sales increased by a substantial 5.7% during the month. Importantly this result has no doubt been positively affected by the business tax deduction for the purchase of new motor vehicles, but it is highly unlikely that the $900 payment to many tax payers in the months of April and May would have been material to the outcome.

On the corporate front there were some key resource production figures released from ERA, Newcrest and BHP, while Harvey Norman and Woolworths provided sales results for the year to June.

The BHP production report advised that annual production was solid despite weak and volatile demand conditions and weather related interruptions. More specifically production was strong for petroleum and coal but the key production items for iron ore and other minerals were much less buoyant.

ERA on the other hand has significantly upgraded its expected earnings for the June half year. Newcrest’s mining production report was upbeat, with production costs at the lower end of expectations, while production was slightly lower than was expected.

On Wednesday, the National Bank announced a major capital raising of around $2.75 billion with $2 billion being raised through a placement and a non underwritten Share Purchase Plan capped at $750 million. The price for participants will be $21.20 which represents a discount of about 10% from its immediately preceeeding closing sharemarket price.

On the retail front Harvey Norman’s sales results for the year ending 30th June showed a headline increase of 3.8%, but like for like sales increased by 1.4% over the year as a whole. While this was not a very strong result, given the economic conditions which have applied over the last 12 months, the performance was reasonable. Indeed in the June quarter this year compared with the June quarter last year on a like for like basis, sales increased by 2%.

Woolworths also announced its sales results which were up 7.5% for the year, and excluding petrol sales were up 8.5%. Mr Luscombe announced that “despite the global economic turmoil, 2009 has been a successful year with solid results across the business overall.”

Looking ahead on the corporate front there is an array of production reports from companies including Centennial on Monday, Gloucester Coalon Tuesday, Lihir Gold and Felix Resources on Thursday and Beach Petroleum and ROC Oil on Friday.

In addition we’ll see the final years figures for Alesco on Tuesday and the interim result from Coal and Allied on Wednesday.

On the economic front the only major piece of potentially market moving information will be building approvals on Wednesday which are likely to continue the positive momentum of recent months. In the United States there is a handful of data scheduled for release with new homes sales on Tuesday, Consumer Confidence and Durable Goods Orders on Wednesday, on Thursday initial jobless figures, while the very important Gross Domestic Product “first figure” will be out on Friday and there are indications that this could show that GDP in the US was positive in the June quarter.

In conclusion the Australian market has bounced back strongly from the easing which was apparent in the first two weeks of July, and the ASX 200 Index now appears to be settling comfortably above the 4,000 point level. On Friday the index was 30% higher than the low point reached on 6th March this year. Taking all things into consideration it would not surprise to see that the markets momentum continue over the remainder of this year, given the expected pick up in economic growth in a reasonably subdued inflationary environment.
Weekly Review 20-27 July 2009
A 59% increase in revenue reported by Goldman Sachs for the second quarter of this year, and a better than expected result from Intel, provided the fuel for our sharemarket’s remarkable resurgence last week by 5.5%, and close to 7.0% on the New York Dow Jones Index.

This positive news from the United States, when overlaid on strong reports by both RIO and ERA, resulted in the best weekly rise since the week ending 27th March this year.

Still on the overseas front, the minutes of the June meeting of the American Central Bank (Federal Reserve Board) also were more sanguine about America’s economic growth prospects this year and for next year. The FED “upgraded” their previous forecasts made in April this year from an expected decline of 2–3.1% in GDP this year, to a smaller contraction of 1-1.3%, and also upgraded 2010’s forecast to an expansion of between 2.1-3%. However the unemployment rate, which is a lagging indicator of the country’s economic health, was anticipated rise from prior estimates to between 9.8% -10.1% for this year, before easing to 9.5-9.8% in 2010..

On the local corporate front, we saw on Tuesday an “upbeat” report from Energy Resources of Australia, a 68.4% subsidiary of Rio Tinto, which reported that uranium oxide production for the June 2009 quarter was 44% higher than for the same quarter last year. On the following day Rio Tinto itself also surprised the market with an increase in its global iron ore production of 8% compared with the same quarter last year, while the Pilbara iron ore production was up 11% over the same period.

Superficially disappointing, but still impressive, Cochlear advised that its net profit after tax is expected to grow “only” 13% in this financial year compared to previous consensus forecast estimates of net profit growth of 18.5%. The major reason for the downgrading in Cochlear’s expected profit growth was to losses on foreign exchange contracts, as a large proportion of Cochlear’s sales are made in US dollars.

Another significant announcement during the week came from Sonic Healthcare which advised that it had signed an agreement to acquire 100% of Ladenannbogen Laboratory, a well known and highly respected laboratory company based in Hamburg in Germany. The result of this announcement went down well with the market and saw the share price increase by 2% following the announcement.

Then on Thursday the National Bank’s New Zealand subsidiary BNZ, advised that the NZ High Court had made a judgement against it in relation to NZ$416 million structured finance taxation matter. At this stage the possibility of appeals against the New Zealand High Court judgement are being considered. The other 3 major Australian banks have exposures to somewhat similar structured products in NZ.

On the economic front, figures were released last week on building activity which showed that the value of work done fell by 4.7% in the March quarter. As actual building construction activity is a lagging indicator of local government building approvals, it can be expected that activity will rebound in the near future.

Also released during the week were figures on lending finance which showed that house finance for owner occupation increased by 2.3% during May to be roughly 8% higher than for a year ago.

In addition two key surveys on Australian consumer and business expectations delivered more positive outcomes than expected. First the Westpac Australian Leading Economic Index contracted at an annual rate of 3.9% in May, an improvement from the revised contraction of 4.1% in April.- While the index is still well below its long term trend of 2.6% there has been a modest uptick in index since its low point in February.

Second the National Bank also released its monthly business survey last week which found that the general mood among retailers, miners and corporates was more buoyant in June, which has translated to a sharp improvement in business conditions to be at the strongest level in nine months.

Looking ahead, the most important matters to watch will be the company reporting season which is continuing in the United States. Over there, there is a large number of very significant companies making reports this week including Texas Instruments, Apple Inc, Caterpillar, Coca Cola, MERCK, Yahoo, Ebay, Wells Fargo Bank, American Express, McDonalds Corporation, Phillip Morris International, Xerox Corporation and others. Results from these companies will provide a clear signal about the future direction for the sharemarket in particular, and for the American economy more broadly.

On the economic front in the United States there is a smaller range of data becoming available, albeit none of them are likely to have a major impact on the sharemarket. These include the “Leading Index”, jobless claims, existing home sales and the University of Michigan Confidence Index.

In Australia the most important data releases will be motor vehicle sales on Tuesday, and the Consumer Price Index on Wednesday while the minutes of the Reserve Bank meeting earlier this month will also be released.

In conclusion the mood of the market still remains tentative, but somewhat similar to “a two steps forward and one step backwards” movement. While one cannot expects that last weeks performance can be repeated week after week, what can be said with a reasonable amount of confidence is that the upward momentum in the market is likely to continue, given more positive market and economic data. As is outlined on the next page my view is that the index could reasonably be expected to increase another 10% before the year is out. It should be pointed out that even if the market reaches this level 4450 at the end of the year, it will still remain 30% lower than its high point reached in November 2007.
Weekly Review 13-20th July 2009
An interest rate cut of 0.25% later this year!

The cut will become almost a certainly should the unemployment rate continue to increase towards 6.5% of the labour force over the next few months.

The increased likelihood of an interest rate cut emanates from a few key words in the Reserve Bank statement it made last week when it decided to leave interest rates unchanged. Those key words were “the Board’s current view is that the outlook for inflation allows some scope for further easing of monetary policy if needed.”

Previously the Reserve Bank was more guarded in its statements about the possibility of any future easing in monetary policy by referring to the need to preserve the balance between mitigating inflation and promoting economic growth. The more benign outlook for inflation was the key indicator which led the Reserve Bank to its more relaxed stance about future interest rate movements.

Two days later we saw the labour force figures which are also a key determinant of whether the Bank will lower interest rates. The result however was somewhat like the “curate’s egg” – it contained both good and bad consequences.

For instance the good was that the increase in the unemployment rate from 5.7%-5.8% rate was less than many had anticipated. On the other hand if the unemployment rate were to remain at these low levels then the prospect of further cuts in interest rates will be reduced somewhat.

Clearly the Australian economy in terms of both growth and the labour market, is faring much better than most other western industrialised countries, which should be a positive for the bulk of the 2198 entities listed on the Australian Stock Exchange. Our unemployment rate for example is substantially below the 9% plus figures for the US and the Euro area respectively.

Another important piece of economic data released during the week was a continuing robustness in finance for housing construction which has seen a sharp upward movement for almost a year now.

But the more anecdotal Australian Industry Group/ HIA survey of the broader construction industry, registered a further decline in June 2009..

On the corporate front there were a few key pieces of market moving announcements made. First the Australian Stock Exchange revealed an unprecedented level of capital raising by listed companies recently. For the month of June total capital raised was $10.2 billion or 95% up on the previous corresponding period, but for the financial year as a whole, an all time record of $90 billion was achieved which “eclipsed the previous record of $77.9 billion in 2007.”

Significantly, while total trades on the ASX were up 17% on the previous financial year, the value of trade was only $1.1 trillion, down 30% on the previous corresponding period due almost by definition, to the decline in overall sharemarket prices.

Connect East the owner and operator of Eastlink, released its traffic data for June which was disappointing. The weakness in the month owes much to the effects of the Queen’s birthday public holiday which, combined with industry rostered days off and school curriculum days, resulted in that weeks traffic declining by 8%.

Rio Tinto also announced during the week that it had reached agreement to sell the Alcan Packaging food Americas division for US $1.2 billion to the Bemis company. However the sale is still subject to customary closing condition including regulatory approvals. Rio also advised that they have made a total of US$3.7 billion of divestments in 2009 – a programme which will continue for other assets identified for sale including the remainder of Alcan Packaging and Alcan engineered products.

Then on Thursday we had the “amazing raising” by the ANZ Bank which garnered an incredible $2.2 billion from its Share Purchase Plan which took the total raising to $4.7 billion when combined with the institutional share placement which was completed about a month ago. This will clearly give ANZ the fire power to make acquisitions, but on the other hand there will be correspondingly more shares to participate in future dividend payments for instance.

Looking ahead on the corporate front we will see on Wednesday the June quarter production reports for Rio Tinto and Energy Resources of Australia while that for Iluka follows on the next day.

On the economic front there are precious few pieces of local data likely to move the markets. On Tuesday there is the National Bank business confidence survey and on Wednesday the Westpac leading economic index released.

In the United States there is a handful of important pieces of data which should give some direction to the future for their sharemarket. On Tuesday the Producer Price Index and retail sale figures are to be released, and on Wednesday the Consumer Price Index, Consumer Confidence, the New York Empire Manufacturing Index and the broader Industrial Production and Capacity Utilisation data. It would not surprise to see industrial production and capacity utilisation figures continue the improving trend which has been apparent over the last couple of months, which should provide a much needed stimulus to the sharemarket’s recent lagging performance.

On Thursday figures on jobless numbers will be out, while on Friday figures on housing starts.

In conclusion the market is bracing for a disappointing reporting season. However the key aspect to watch will be whether the disappointing results will be better or worse than anticipated.- If the latter this will provide a fillip to the market. At the broader level the flow of economic data continues to be relatively positive, which is likely to underpin the general upward trend in the market which is now four months old.
The Weekly Review – 6-13 July 2009
A truly remarkable year is perhaps the most appropriate way to describe last financial year on the market.

For instance we had a near death experience in September / October last year when the western world’s financial system almost froze over, and the share market in turn showed a precipitate fall – a 55% drop between November 2007 and last March. But remarkably in the last three and a half months, the market has shown a massive turnaround.

The distillation of all this turmoil, was that the ASX 200 index declined by 24.7% over the financial year as a whole - the worst result since 1982- As a partial counterpoint to this pretty dismal performance, was the fact but the 10% bounce back in the June quarter was the first positive quarterly result since September 2007.

But one particularly outstanding feature of last year on the market, and one which carries with it favourable portends for the market’s immediate future, has been an unprecedented amount of capital raising ($80 billion) which has taken place over the latter part of the financial year. This “new money” serves to bolster the capital position of listed companies, lessen their reliance on debt, assist cash flow in difficult times, and position them much more favourably should potential acquisitions present themselves.

Of more current significance on the corporate front last week was the major upgrading in profit guidance by David Jones for the next financial year from a profit growth of 0%-5% to 8%-12%.This massive turnaround in the space of just a few months was not only a real boost to DJ’s market fortunes, but more broadly it provides an up-beat tone and sentiment to the market as a whole. Coincidentally the upgrade by David Jones occurred a day before the official retail sales figures were released, the latter of which showed a 1% increase in May, and an increase of 6% over the year. Clearly more buoyant retail sales owe much to the Government stimulus, and in the David Jones case, to sound management in keeping costs under control.

Another important feature of the market’s performance last week was the successful conclusion of US $15 billion rights issue by Rio Tinto. Especially favourable was the 96.97% take up of the rights by UK investors in Rio Tinto Plc and 94.76% in Australia.

Elsewhere Wesfarmers announced that it will transfer 45 smaller Coles supermarkets and liquor stores to FoodWorks. In its announcement Wesfarmers stated that the transfer is a “win – win outcome that will ensure continued service to customers and ongoing jobs for team members”.

A former share market darling (which has subsequently fallen out of favour) namely the Toll Group announced that it had entered in to an agreement with Chevron Australia to manage the Barrow Island supply base and logistic service contract for the massive Gorgon Project in Western Australia. Toll advised that the contract is valued at $180 million over three years.

In addition to the retail sales data referred to earlier, other significant pieces of economic information released over the week were building approvals. In contrast to movements over the past six months, approvals showed a seasonally adjusted fall in May. Statistics on engineering construction also showed a decline with only public sector work showing an increase in the March quarter. It should be noted however that engineering construction tends to be a lagging indicator of the economy and is still showing an increase on an annual basis. Expectations are that engineering work will slow significantly over the next year.

The Australian Industry Group (AIG)/PricewaterhouseCoopers Manufacturing Index continued to exhibit a moderation in its rate of decline, while the AIG/Commonwealth Bank Services Sector Index showed the first expansion after 14 months of contraction. These results lend support to the view from a disparate range of partial economic indicators that the rate of deterioration of the economy is slowing.

Looking ahead on the corporate front we have Transurban’s traffic update due on Tuesday and CSR’s AGM on Thursday.

On the economic front the most significant event will be the Reserve Bank’s decision on interest rates on Tuesday. Expectations are that rates will remain on hold for the third month in a row at the level of 3%.

Monday sees the ANZ job advertisement series which can be expected to continue to show a decline as the labour market, as it is also a lagging indicator of economic activity. On Wednesday figures on home loans and investment lending are due out and are likely to show that home lending is consolidating, which is yet to be seen for investment lending. Labour market figures are scheduled on Thursday, and it is anticipated that the unemployment rate will increase from the 5.7% level of last month. However the doomsday forecast of the unemployment rate reaching 10% in the near future would seem to be most unlikely.

Looking abroad to the United States there is only a handful of pieces of data scheduled for release this week. The Non Manufacturing Index is out on Tuesday, Consumer Confidence on Wednesday, initial jobless figures on Thursday and the University of Michigan Confidence Index on Saturday. Of most importance will be the Non Manufacturing index and the initial jobless figures. It is anticipated that the jobless figures, while still at unacceptable levels, will continue to show a reduction in the rate of increase, while the non manufacturing index is likely to show a stabilisation.

In conclusion the market’s vigorous rebound in the last quarter of the financial year, together with indications that the Australian economy is showing more resilience than previously anticipated, are now coalescing into a ground swell of opinion which strongly suggests that the worst of the share market’s performance is now well and truly in the past.


Weekly Review 29th June – 6th July 2009
Investors beware!

If ever there was a time when investors should be particularly wary of economic forecasts, by international economic agencies, then last week was it.

First we had the World Bank expecting that the global economy will shrink further this year by 2.9% compared with a previous forecast of 1.7%.

Then we had the OECD stating the reverse, with its thirty member economies expected to decline by 4.1% this year compared with a decline of 4.3% expected in its March forecasts, and then we have the International Monetary Fund with its focus on Australia, predicting that the Australian economy will shrink by only 0.5% this year compared with a forecast made just two months ago in which it predicted that the our economy would shrink by 1.4%!

Perhaps the best way through this “international economic fog” is to merely note the forecasts made by these agencies rather than treating them as part of the world “economic cognescenti.”

Elsewhere on the international front the US Federal Reserve Board (FED) released its decision on interest rates during the week in which it decided to leave their key short term interest rates at the range of 0-0.25%. But more significant than the decision to leave interest rates on hold were a couple of comments it made about the current and future state of the US economy.

First the FED commented that “the government and Central Bank policy actions over recent months will contribute to a gradual resumption of sustainable economic growth in the context of price stability.” Secondly and very significantly the Fed advised that it “will employ all available tools to produce economic recovery and to preserve price stability” and finally it indicated that interest rates were likely to remain at “exceptionally low levels... for an extended period.”- In summary the FED expects the US economy to pick up with interest rates and inflation remaining low for the foreseeable future.
Underpinning these Fed comments are disparate economic data which point to a slowing in the rate of deterioration. While the US economy is not yet showing positive growth, there is an increasing view among forecasters that the third quarter of this year is likely to show positive GDP growth.

On the local scene, and as flagged in last week’s review, motor vehicle sales, which are a key indicator of consumer demand, showed a strong 5.4% increase in the month of May which, apart from a slight increase in December last year, is the first increase since July last year.

At the corporate level there were three significant developments. The first was a very substantial purchase by the National Australia Bank of shares in Aviva Australia Holdings Limited, which embraces Norwich Union Life and the Navigator investment platform, for $825 million. Very importantly the National Bank advised that the acquisition is expected to be earnings per share and return on equity accretive in the first full year following acquisition (excluding estimated integration costs). The key words “earnings per share accretive” always go down extraordinarily well with the market!

Also on the corporate front Catalpa Resources and Lion Selection Limited announced a merger, to be implemented buy a scheme of arrangement under which Lion shareholders will receive one Catalpa share for each Lion share they hold. In brief the merged company will be a mid tier gold company with resources at the Edna May Gold Project in WA and the Cracow gold mine in Queensland the latter of which is currently producing gold.

Also early last week saw the impact of the announcement (late on Friday of the week before) by WorleyParsons about its signing of a contract with the Egyptian Nuclear Power Plant Authority for consultancy services to support the delivery of the first Egyptian Nuclear Power Plant The revenue to Worley Parsons is expected to be approximately US$160 million over the eight years of the project. At the same time WorleyParsons also announced that it signed a similar consultancy services contract with the Republic of Armenia.

Looking ahead on the economic front some we will see key indicators of how the Australian economy is progressing, with retail sales and building approvals available next Wednesday. It is reasonably expected that these figures will be more positive than negative. These results confirm indications that, while the Australian economy is still soft, the overall decline in activity is much milder than had been previously anticipated.

Looking abroad to the United States, we see a plethora of key pieces of data including the Chicago Purchasing Manager’s report,( which is a closely watched indicator of the state of health of the industrial sector), figures on mortgage applications, the Institute of Supply Management more comprehensive figures on the manufacturing sector and motor vehicle sales, scheduled for release. Also highly sensitive figures on the unemployment rate will be out on Thursday, and it is expected that the US unemployment rate could approach 10% of the labour force over the next few months- the unemployment rate for May was 9.4%.

Indeed an unemployment rate in double digits has already been flagged by President Obama. However the rate of deterioration in the labour market in the United States shows clear signs of slowing.

In conclusion the old saying that investors should “sell in May and go away” is not apparent this year, as the last 12 months has been anything but an ordinary year.

Over this current financial year the ASX 200 index has shown a decline of 20% which is the worst financial year performance for many years, but it is a marked improvement from the 54% decline which was recorded between the November 2007 high point and this year’s low on 6 March, and the 40% fall in calendar 2008. But as has been alluded to in previous weekly reviews the trifecta of powerful economic forces, of “multiples of billions of dollars of government expenditure”, the ”lowest short term interest rates since the late 1940’s”, and “petrol prices at levels equivalent to those of several years ago”, are powerful forces mitigating the extent of slow down in the Australian economy.

As the share market is a lead indicator of what happens in the economy, and as there seems to be now growing support for the view that the Australian economy will show positive growth next year, the outlook for the Australian market for the remainder of this calendar year is correspondingly more buoyant. My estimate is that an ASX 200 index approaching 4,500 points by December this year would not seem to be unrealistic. A number of other forecasts can be seen on the next page.

Weekly Review Week 22-29 June 2009
The unprecedented amount of capital being raised by ASX listed companies continued unabated last week with over $2 billion raised by Asciano coincident with the mammoth US $15 billion Rio Rights Issue documentation being issued to shareholders.

However overall the market took a breather last week from the surge we have seen in sharemarket prices during the first two weeks of June. The net result was that the ASX200 Index fell by 4% over the five trading days but still remains a very impressive 24% higher than the low point reached on 6th March last.

Of significance on the economic front, the prospect of interest rates remaining at current levels for the foreseeable future were underlined in the minutes of the June Reserve Bank meeting which were released during the week. The text of the minutes added very little to the press release made after the announcement of no change to interest rates, with the Bank underlining the fact that the fiscal stimulus and the already lowered interest rates should mean that the downward risks to a more buoyant outlook for the economy have lessened.

Also on the economic front and not surprisingly, figures on commencements for dwelling construction fell by a sizeable 4% in the March quarter to be 22.5% lower than in the same quarter last year. The decline in actual activity in residential construction in particular should not be unexpected given the fact that it is a lagging indicator, and responds to the situation which existed in the latter part of last year at the height of interest rates, and the onset of what has now become the Global Financial Crisis.

On the other hand a leading indicator of future building activity is lending finance which shows that housing finance for owner occupation increased by 1.9% during April, although commercial finance lending showed a decline of 12.9%. Certainly the household sector seems to be performing a lot better than previous expectations.

Looking abroad the United States is now in the process of formulating major regulatory reforms to its financial sector.

Reinforcement to the proposals was given by President Barak Obama during the week in his comment that “Wall Street seems to maybe have a short memory about how close we were to abyss, than I would have expected. All we’re doing is cleaning up the mess that was made.” This tone and approach will more than likely see major changes to the US financial regulatory system which a reasonable onlooker would say is highly desirable and well overdue. Certainly the regulatory system in Australia is vastly different to that in the United States and has assisted our economy and financial markets to weather the turmoil very much better than its overseas contemporaries.

On the local corporate front a major capital raising was announced by Asciano which has been under balance sheet (debt) pressure for some time, with a capital raising amounting to over $2 billion through a fully underwritten $1.10 Non-Renounceable Rights Issue. The Asciano share price after rising to almost $1.48 during the week prior to the announcement, but still finished at a healthy premium to the rights issue price of about $1.30 last Friday.

Rio Tinto’s Rights Issue hit the market on Wednesday with an initial burst of enthusiasm, which tended to wane in the latter part of last week.

Another important event was CSR’s announcement that it will pursue a demerger of its sugar and renewable energy business to separate that component from its building products and property division. This announcement appears to have gone down well with the market, judging by the share price reaction.

On a positive note Wotif.Com announced a profit upgrade during the week while Nufarm announced that it will not achieve previous earnings guidance for the current financial year due to a decline in demand for glyphosate and increased price competition for fewer sales opportunities in key markets.

Looking ahead there is very little in the way of corporate activity to drive the market one way or the other. But on the economic front we will see indications of how the household sector is weathering the current environment with figures on motor vehicle sales available on Monday. It would not surprise to see that this particular indicator show signs of consolidation after the battering it has received over the better part of the last 12 months.

In the United States there is again a range of economic data which more likely than not, will show a continuation of the slowing in the rate of deterioration in that economy. Durable goods orders data will be out on Wednesday, while the Federal Reserve Board is expected to keep short term interest rates on hold at the current target range of 0-0.25% on Thursday, while later in the week the University of Michigan Confidence Index will be available.

In conclusion the fact that the usual market softness in the month of June has generally not been achieved, should not surprise experienced investors.--The past 12 months have been anthing but “usual”, given the unprecedented turmoil which has hit financial markets.

While the economy remains in a delicate situation, with further easing likely to occur, the huge amount of “shoring up” of corporate balance sheets over the past three months should put ASX listed companies in a much better position to confront the difficult economic environment over the medium term.


Weekly Review 1-8 June 2009
The capital raising spree continued last week with the ANZ announcing a massive capital raising of almost $3 billion, followed by Ausenco and Primary Healthcare announcing smaller raisings.

The rash of capital raisings, which in most cases have been made at a significant discount to the prevailing market price, does present retail investors with the opportunity to purchase the shares at the same price as being offered to institutional investors-this helps to level the playing field, albeit to a limited degree only, between institutional and retail investors.

More broadly the market displayed a feckless behaviour during the week rising on Monday and Tuesday before falling on Wednesday and Thursday and up on Friday to produce a net rise over the week of 1.5%.

The drivers of this seesaw behaviour stemmed very much from the United States where we saw a sharp increase in consumer confidence on Tuesday followed by further weakness in US housing prices on Wednesday.

More particularly the week started on a surprising note with the decision by the Australian Securities and Investments Commission to terminate the ban on covered short selling for financial securities with immediate effect. “Naked short selling”, or selling shares which the putative seller neither owns nor has borrowed prior to the short sale remains prohibited. However the anticipated sharp fall off in the share prices of financial stocks did not eventuate, with the financial sector index of the market in fact declining only slightly more than that for the market as a whole.

A major corporate event during the week was the announcement by Rio Tinto that it had reached an agreement with Japan’s Nippon Steel Corporation on the price of iron ore deliveries for the contract year commencing 1 April 2009. The reduction in price for the iron ore, while significant was less than had previously been feared. Despite the reduction, the price is still higher than that of two years previously.

Another significant event during the week was the announcement by CSL that the US Federal Trade Commission had rejected its takeover offer for Talecris Bio Therapeutics. Subsequently CSL advised that it will challenge the decision of the US Federal Trade Commission in the courts. Prior to CSL’s decision to fight the ruling there was a general expectation that the $785 million that had been raised in August last year to finance the purchase, may be returned to shareholders by way of a share buy back scheme. However the proposed court action now makes this capital management action more uncertain.

The announcement by Caltex that it was proposing to purchase 302 Mobil service station sites went down particularly well with the market which saw a bounce in Caltex’s shareprice on Thursday by almost 2% when the overall market showed an overall decline by about 1.5%.

It should be noted however that Woolworths which has control of 407 Caltex sites is not involved in anyway in this decision by Caltex.

Another corporate event of particular importance was that a notable survivor from the internet bubble and burst, Melbourne IT, held its Annual General Meeting last week. While recounting a robust annual result, it cautioned that the outlook over the course of the next 6 to 12 months is likely to be one where only “modest growth in revenue will be achieved”.

On the economic front, figures on private investments showed that capital equipment spending fell back sharply by 8.9% in the March quarter, while expectations of future investment for 2009/10 is 11.7% lower than the estimate for the 2008/09 made 12 months ago.-However figures on construction expenditure were less disappointing but still showed a decline in the March quarter of 3.7%.

The only major corporate event to look forward this week to is the Annual General Meeting on OzMinerals on Thursday.

On the other hand, on the economic front we have some very important indicators of demand in the form of retail sales and building approvals scheduled for Monday. The Reserve Banks decision on interest rates is out on Tuesday, which is likely see interest rates remain on hold at 3%. Gross Domestic Product figures, which are available on Wednesday, will be watched closely to see whether GDP growth on a seasonally adjusted basis actually fell in the March quarter- If so this would constitute two quarters of negative growth which some have said signifies that the economy is in recession. However this definition is fairly meaningless when one considers a hypothetical case where there is a decline in GDP in one particular quarter of say 6%, which is bookended by slight increases in each of the previous quarter and the following quarter would not constitute a recession. Clearly the two quarters of negative growth definition might be handy for some economists and commentators but is essentially meaningless as far as the broader community is concerned.

On Thursday the Governor of the Reserve Bank Glenn Stevens speaks while on Friday the Australian Industry Group Construction Index is due out.

Looking abroad to the United States there are a number of very important lead indicators for the market scheduled for release. The Institute of Supply Management Index of the manufacturing sector due out on Tuesday, motor vehicle sales and mortgage applications on Wednesday, the Institute of Supply Management’s non manufacturing sector series is scheduled for Thursday together with factory orders and non farm productivity. While the very intently watched figures on employment and unemployment situation are due out on Friday.

It would seem more likely than not that the unemployment rate in the United States may have increased slightly in April but the rate of increase is likely to have shown a marked reduction particularly in light of the sharp increase of consumer confidence in figures released during last week, and a variety of other data which has given indications of a deceleration in the rate of deterioration.

In conclusion the market is now entering the last month of the financial year and if past experience is anything to go by one can expect that a softening is likely prior to 30th June. But the overall momentum in the market remains relatively robust and despite the ups and downs we have seen in the market over the last few weeks the ASX 200 index still remains 20% higher than just on three months ago.

Weekly Review 25th May – 1st June 2009
“Raining raisings” may be an apt way to describe last week on the market.

Last week’s capital raisings by Billabong, Nufarm and GrainCorp (which totalled $650 million) come on top of those over the last couple of weeks from Macquarie Bank, Bluescope Steel, OneSteel, Santos, General Property Trust, Alumina and Adelaide Brighton Cement.

The amount raised so far during May follows the astounding $7 billion raised through placements alone in the month of April.

Very importantly for individual investors, the recent spate of capital raisings does provide retail holders with the opportunity to purchase additional shares in the affected companies at the same price which had been previously offered to institutional investors.

While capital raisings have been the dominant theme of recent market activity there were also a number of major corporate and economic events which drove the markets performance last week.

On the economic front we had the release of the minutes of the May meeting of the Reserve Bank. The minutes reiterated the comment made in previous weekly reviews that the Bank is more likely than not, to keep interest rates on hold in the immediate future. However the Bank did indicate that they would continue to “monitor the strength and durability of the tentative signs of an improvement in the global and domestic economies”. Reading between the lines of this comment, the Reserve Bank would not be tardy in cutting rates, should the unemployment rate ratchet up sharply.

Also during last week the Secretary of the Treasury went to great pains to indicate to an audience of business economists that budget forecasts of 4% plus GDP growth in 2011/12 to 2016/17 should be neither unexpected nor impossible to achieve. The Secretary provided significant detail about the Treasury’s modelling which showed that growth of over 4% was readily attainable when one takes account of productivity, employment growth and an improvement of the participation rate among other matters.

Indeed the Secretary pointed out that during the 1960’s there were seven years of GDP growth above 5%. In the seven years between 1983/84 and 1989/90 there were four years of growth above 4% and an average growth rate of 4.23%. In the seven years from 1993/94 to 1999/00 there were actually six years of above 4% growth. He concluded his address with the comment that the “slowing in the rate of deterioration in the global and real economy indicate that policy action has generally been sound.”


Also in a speech delivered by the Governor of the Reserve Bank on the same day, the Governor referred to developments over recent months being “consistent with the view that a recovery will get underway towards the end of the year”.

Also on the economic front there was an uptick in motor vehicle sales in the month of April (as flagged in last weeks review) although over the last year total sales are still down by just over 20%. Wage figures surprised on the upside with total full time ordinary earnings increasing by 5.9%.

Elsewhere on the corporate front, and apart from the large capital raisings that have been referred to above, we had the annual results from Lion Nathan, AWB and James Hardie. The Lion Nathan report was positive with a 6.9% increase in net profit after tax for the six months to March 2009 compared with the same period in the previous year. Lion also commented that it “expects a higher growth rate in the second half due to innovation and momentum.” It should be noted that the Kirin Holdings currently has a take over offer for Lion Nathan.

Less positively the result from James Hardie reported that profit over the year to March showed a decline of 44%, and commented that while the outlook in the US remains unclear, “housing starts in Australia in the medium density dwellings and renovations area, may provide some growth and may partially offset the overall housing market decline”.

The half year results from AWB showed that net profit after tax was down 62% but the company in its outlook statement said that it looked “forward to improvement in the second half which is traditionally stronger…and are confident that the company strategy we have in place will increasingly benefit the customers and shareholders going forward.”

Finally, and on a disappointing note Great Southern Limited advised that voluntary administrators were appointed to the company “to look at options for its restructure and its financial position”.

Looking ahead on the corporate calendar, the financial year results from Programmed Maintenance and the Annual General Meeting of Iluka are scheduled for Thursday.

On the economic front figures for the Westpac leading indicator series will be available on Wednesday; and figures on private capital expenditure and the Housing Industry Association homes sales are available on Thursday. Also on Thursday Deputy Governor Battelino of the Reserve Bank will make a speech.

In the United States there is a cluster of economic data which is likely to have an impact on the direction of the sharemarket scheduled for release. The house price indicator series is available on Tuesday, consumer confidence and mortgage applications on Wednesday, the very important series on durable goods orders on Thursday and the second preliminary estimate of the March quarter Gross Domestic Product, and the Chicago Purchasing Managers report available on Friday, and on Saturday morning our time the University of Michigan Confidence Index.

If the recent pattern continues during the coming week it is expected that the economic situation in the United States, while not showing an uptick in tempo, is at least showing signs of stabilising, albeit at a low level.

In conclusion we are now entering the 13th week of the improvement in overall sharemarket activity, and in the last week the main indicator of activity the ASX 200 Index is actually up by 2% after the decline last week, to be 20% higher than the low point of the 20th March.

Over the course of the weeks ahead it would not surprise to see a continuation in the number and value of capital raisings by listed companies, while the trend in overall sharemarket prices is likely to be heavily influenced by external events particularly in the United States.

One significant feature of the performance of both the Australian and the American sharemarkets over the course of this year has been the marked reduction in volatility compared with the later part of last year. A decline in volatility does give evidence of a stabilisation, and confidence that the worst of the retraction in overall sharemarket prices may well have been past.

Week 18 - 25 May 2009
The market greeted the Federal Budget with a proverbial yawn mid week, but weaker retail sales data from the US, and rumours about a possible rights issue by Rio Tinto, took some of the effervescence off the markets ebullience over the last two months. The net result saw the market fall by 2.5% over the week however making it only the third weekly fall in the past 12 weeks.

Despite the weaker performance last week, the market index remains 22% higher than its low point on the 6th of March. Also despite weakness in the American market during the week, the Dow Jones index is still up 25% over the same period, while London is 22% higher, Hong Kong up an amazing 43%, and Japan up 30%. These two Asian markets, mirror the surge which has been seen in China’s two major indexes which are up almost 50% so far this year.

The Budget, which proposed a deficit of $59.8 billion in the 2009/10 financial year, equivalent to 4.9% of Gross Domestic Product, can be described as reasonably appropriate in the circumstances, given the deceleration in overall economic activity. Clearly the bias of the Budget is on the side of boosting demand rather than reigning in expenditure to produce a smaller deficit. While a deficit of 4.9% of Gross Domestic Product seems large, it pales into insignificance with the corresponding figures of 13% in the United States and 12% in the United Kingdom. Also it should be noted that deficits over 4% of Gross Domestic Product were recorded in 1992/93 and 1993/94.

However a key concern embodied in the Budget figures, is that it is predicated upon a increase of around 230,000 in the number of persons unemployed from 6% in the current financial year to 8.25% next year.

A “back of the envelope” calculation indicates that this would detract around $10 billion from consumer spending – only partially offset by the potential increase in spending by additional funding being provided to pensioners. Some scepticism was also raised about the Budget’s anticipated rebound of GDP growth in 2011/12 of 4.25%, which some have said was unrealistic given the slack growth performance expected in the preceding years. Looking at past experience, a strong rebound from three periods of very much below trend growth should be neither unexpected nor unrealistic.-When one forecasts three years out, no model is going to be perfect.-My view is that after three years of anaemic economic growth, a rebound of 4.5% should not come as a surprise.

On the corporate front last week there was a trading update from the Commonwealth Bank which advised that “operating conditions remained challenging, with a continuing slowdown in the domestic economy” – However somewhat disappointing to investors, is the Bank’s decision to reduce the final dividend for the current financial year by 25% to $1.15, taking the full year dividend payments up to $2.28 - a reduction of 14% on the prior full year. However it should be noted that a dividend of $2.28 on the current CBA share price still translates to a dividend yield of almost 6.5% fully franked.

Also the result from Incitec Pivot was positively received by the market, when it advised that its net profit after tax, excluding material items, represented a fall of 1% on that for their previous corresponding period. The company commented that it was “a solid result in a period heavily impacted by the global financial crisis and during which demand for its products was down in some sectors by almost 50%”. Leighton Holdings also announced a profit downgrade later in the week although the company reported that “against the backdrop of the current environment the Groups operating profit remains solid.”

CSR disappointed the market and reported that profit for the year ended 31 March was down 17%, albeit that the result was in line with previous guidance given to the market.

On the economic front figures on lending for housing continues the strong rebound which has been evident in recent months, while lending for investment purposes showed an uptick in March.

On the corporate front we have Lion Nathan interim profit report due out on Wednesday together with Oz Minerals Annual General Meeting. On Friday there is the Coca Cola and Invocare Annual General Meetings scheduled.

On the economic front there is a relative a paucity data scheduled. The Minutes of the May meeting of the Reserve Bank is available on Tuesday which are not expected to shed any light on the previous assessment that the Bank is in no hurry to reduce interest rates in the near future.

On Wednesday we have the wage cost index that is expected to be very subdued showing an annual rise of around 3-4%. On Thursday motor vehicle sales will be released which may show that the decline in registrations, which has been apparent the last 6 months or so is now decelerating.

In the United States figures on housing starts are scheduled for Tuesday jobless claims on Thursday, and figures on leading indicators are scheduled for release on Friday.

In conclusion the market took a well earned breather last week and the saying “sell in May and go away” may yet prove to be somewhat prophetic. On the other hand the fact that the market had been punished so severely over the last 18 months means that 2009 may well show a different pattern to that of recent years. With no major corporate or economic data scheduled this week, the dominating influence is likely to come from offshore particularly from the United States and China.

Weekly Review 11-18 May 2009
Less stress about the results of the US Bank stress tests, a quadrella of more buoyant than expected economic news, workmanlike results from Westpac and Orica and a “changing of the guard” at Telstra were highlights of last week on the market.

The positive theme which has characterised the market since the low point on the 6th of March, saw the ASX200 index rise over 4.5 percent for the week, and come within touching distance (58 points) of 4000- the highest that has been recorded since November last year.

But it was an array of important economic data helped support the market. More particularly dwelling building approval figures showed a strong rise of 3.5% in March, which continues the more positive tone in this sector of the economy over the last few months. National retail sales figures also showed a strong rise of 2.2% during March which was most impressive as it predated the effects of the most recent “handout” by the Federal Government of up to $900 for many Australian tax payers with a taxable income below $100,000 per year.

Also while the Reserve Bank’s decision to leave rates unchanged did not come as a surprise to the market, the Banks commentary that. “the reduction in interest rates over the last 9 months has been significant… and the substantial fiscal initiatives will provide significant to support to domestic demand over the period ahead” is a welcome portend. In simple language the Bank is unlikely to lower interest rates in the near future given all of the stimulus being provided to the economy.

However one of the most surprising pieces of economic data for sometime was the unemployment rate which unexpectedly declined sharply from 5.7 percent in March to 5.4 percent in April. Indeed the gyrations in the monthly unemployment data in the past two months do raise concerns about the reliability of the estimates. A better indication of the situation can be gained from the trend figures which showed a slight rise in the unemployment rate from 5.4 percent to 5.5 percent. When monthly economic data is released which appears either too good to be true, or too bad to be true, it’s generally because it is!

On the corporate front the interim result from Westpac showed that profit declined by 6 percent, and dividends were cut by 20 percent to 56cents a share. Nevertheless the result was generally well received by the market, although the results were slightly less than were expectations. Also despite the cut in the dividend, the dividend yield for Westpac still remains over 6 percent, which embody all the taxation benefits of being 100 percent franked.

The results for Orica were somewhat better than had been anticipated, with half year profit down only 2 percent, and dividends actually increased by 3 percent compared to the interim reporting period of 2008. More significantly however, Orica commented in their outlook statement that they expect that “profit after tax in 2009 to be higher than that in 2008”.

Reflecting the buoyancy in official retail sales data David Jones sales figures showed that the April quarter was better than expected. Furthermore the company commented on an improvement in sales in the month of April, despite the two previous months trading in line with their guidance. But comforting to the market was David Jones’ reaffirmation of their guidance for a profit after tax for the 2009/10 financial year of 0% -5% growth.

Data from the ASX showed that the value of turnover was down significantly in April as expected. However total capital raised on the market during April was an amazing $7.1 billion, up 65 percent on the same month last year. However this figure should not come as a surprise to most investors given the plethora of capital raisings lately, including Bluescope, Maquarie Group, and very recently GPT.

Looking ahead on the corporate front we see the Commonwealth Bank release a trading update on Wednesday, which will be watched with somewhat more intense than usual, particularly in relation to bad debts and impaired loans.

Also on Wednesday CSR’s financial years figures are scheduled. But most importantly we have the Federal Budget on Tuesday which is likely to contain targeted spending on key infrastructure projects with a number of tax increases in selected areas. A pertinent comment in this respect was made in the recent Economist magazine of 2 -8 May that “Although higher taxes would be a mistake in a recession, they are inevitable when growth returns.”

On the economic front we have data on home loans and investment loans on Tuesday, and Consumer Confidence figures on Wednesday. It is anticipated that the figures for lending for homes and to a lesser extent for investment purposes are likely to show continuing strength.

In the United States there is a handful of important pieces of data due out, including mortgage applications and retail sales on Wednesday, inflation figures on Thursday (Producer Price Index and the Consumer Price Index) while on Friday key manufacturing data on industrial production and capacity utilisation are due out. It is confidently expected that mortgage applications will continue the relative positive tone of the past few months, retail sales may show a deceleration in the rate of deterioration, while inflation has become almost an irrelevancy. But the most important information will be on the manufacturing sector which is likely to continue to experience difficult times.

In conclusion the continuing buoyancy in the sharemarket has surprised many, while debates continue about whether the stunning 25 percent rise in the market since 6 March is a so called “bear market rally”, or simply a “rally”. My view is that it is the latter-given the enormous economic artillery being fired at the economies and markets right around the world; billions and trillions of dollars being spent by various governments; interest rates at levels not seen (in Australia’s case) for 50 years, and petrol prices at levels not seen for about three years. Sooner or later this artillery must have a positive effect on the economy. As the sharemarket is a leading indicator of economic activity one can reasonably expect that the current momentum is more likely to continue, even if at a much slower pace than has been recorded in the last two months.


Weekly Review 4-11 May 2009
Disappointing interim results by the NAB and ANZ and anxiety about the release of the so called “stress test” on 19 US banks some time this week, dominated market activity midweek, although the Federal Reserve Board’s relatively positive statement, provided a fillip to the market in the late week trading. These influences came on top of the scare put into world economies and markets with the spread of the Swine Flu epidemic.

While overseas events played their part on domestic market activity, the net result was that the ASX 200 index managed to show a very healthy 1.5% rise over the week. This now makes it six out of eight weeks where our market managed to show an increase-indeed since the 6 March low, the index is up by over 20%.

On the other hand the US market has showed exceptional resilience over the last two months, and during the week itself rose 2.9% to be over 25% higher than the recent March low point. Other overseas markets also showed strong improvement over the week with London up 4%, Hong Kong up 1.4% with only Japan dragging he chain showing a rise of only1%. Also all major overseas markets have shown rises of close to 20% since the March low point.

Interestingly in all the discussions about “rallies” and “bear market rallies” and comparisons with cyclical low and high points, the Economist magazine (25 April-1 May1 edition) managed to put some balanced perspective into the picture. Specifically it made the observation that “between 1929 and 1932 the Dow Jones Industrial Average soared by more than 20% four times, only to fall back below its previous lows. Today’s crisis has seen 5 separate rallies in which prices have rallied more than 10% only to subside again.”

In Australia since the onset of the subprime crisis in August 2007 our market has seen five increases of 10% and of these two greater than 20%. But for almost 6 months now the market has oscillated around current levels which gives genuine comfort to investors about the emerging sustainability of the market and provides support for the position that the worst is now behind us.-As at last Friday the market is at the highest that it has been since 12 November last year.

On the local scene the report by the National Australia Bank was somewhat disappointing and below expectations, with cash earnings falling by 9.4% and dividend reduced by 24.7 cents, or 7% to 73 cents fully franked. The next day the ANZ produced its interim result which was more disappointing with cash earnings per share falling sharply by 24%, and dividend cut by 25% to 46 cents.

In his outlook commentary ANZ Bank CEO Mr Mike Smith commented that “the global slowdown will be significant and protracted in many parts of the world. In Australia and NZ, this is playing out as we expected and we anticipate the situation to continue in to the second half of the year and in to early 2010”. Significantly the National Australia Bank did not provide any outlook statement in its media release.

Macquarie Group also reported a profit decline of 52% on the 2008 financial year and dividend was cut substantially to 40 cents per share for the half year. Overall however the result was close to market expectations. Surprisingly though, Macquarie went in to a trading halt on Thursday evening as it announced that it was negotiating for a capital raising with an issue price expected at $27 per share.-precise details of which should be revealed early this week.

Other major corporate events were the takeover bid by Japanese Kirin Holdings Company to acquire all the shares it does not currently own in Lion Nathan for the consideration of $12.22 per share; ABB Grain’s announcement that it had received a conditional and nonbinding offer from Canadian Viterra group to acquire all of the shares in ABB, via a scheme of arrangement, and finally Lynas Corporation advised that it has signed a binding agreement for China Non-Ferrous Metal Company to become a new majority holder in Lynas

Also Alumina announced a $1 billion dollar capital raising which embodies an institutional and a retail entitlement offer of 7 new shares for every 10 existing shares. The company advised that the funds are necessary to reinforce Alumna’s balance sheet during the period of economic uncertainty and volatility.

As previously noted above the Federal Reserve Board in the United States was relatively upbeat about the future course of the economy, and advised that “while the US economy has continued to contract, the pace of the contraction appears to be somewhat slower, that inflation will remain subdued, and that the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.” The Board also advised that it will maintain the target range for their official interest rate from 0% to 0.25%, and that economic conditions are likely to warrant exceptionally low levels of interest rates for an extended period.

Looking ahead on the economic front, the Reserve Bank’s decision on interest rates will be made available on Tuesday. While opinion is reasonably divided, it more likely than not, that the Bank will leave official interest rates unchanged, opening the possibility of further reductions over the remainder of 2009, as the economy shows further weakness, and the unemployment rate increases somewhat.

In addition indications on the state of consumer spending will be available on Wednesday with the release of the retail sales, while on Thursday the unemployment rate is due out which is anticipated to continue to show an increase from the 5.7% rate last month.

A good indication of how the Federal Government sees the future will be available in the Federal Budget which is due out on Tuesday next week. If media commentary is anything to go by, the budget is likely to contain some tax increases but will also target some additional limited and focused stimulus expenditure while paring back on less employment sensitive areas.

On the corporate front the most closely watched report will be that from Westpac Bank which is scheduled to release its interim results on Wednesday. If it reports a result better than anticipated or better in a relative sense than ANZ or NAB, this could be greeted much more favourably by the market. Also on Monday this week, we have Orica’s interim results, while Lihir’s annual general meeting is scheduled for Wednesday.

In the United States there are some important pieces of data becoming available, including construction spending on Tuesday, services industry, and mortgage applications on Wednesday while the unemployment rate is out on on Friday. It is expected the current unemployment rate of 8.5% will increase towards 9% over the next few months.

In conclusion we are now entering the 8th week of increases of a continued and sustained increase in overall share market prices. As the impact of the Federal stimulus package takes hold, and the benefits of low interest rates work their way through the economy, the upward momentum of the market is likely to continue even though the .economy will remain soft until later this year. Surprisingly buoyant US economic data last Friday should set us up for a bright start to this week.

Weekly review 27April-4 May 2009
Benign inflation figures and an impressive update from Wesfarmers that helped partially offset the gloomy yet now boringly predictable forecasts by the International Monetary Fund, were highlights of last week on the market.



Balancing out the pluses and minuses the ASX 200 Index fell 1.7% over the week to be 0.3% lower than at end of 2008 but up a solid 18% from this year’s low on 6 March.



On Wednesday the IMF produced its fifth revision in six months for world economic growth. Specifically it predicts that the world economy will shrink 1.3% this year compared with its January projection of 0.5% growth. In Australia’s case the IMF has predicted that the Australian economy will fall by 1.4% this year before recovering 0.6% in 2010. The latest official Australian Treasury forecast for GDP growth is 1% in 2008/09 and 0.75% in 2009/10.



The fact that the IMF has made five revisions to its forecast in 6months does create a credibility problem for this Organisation.



On the local economic front the Consumer Price Index (CPI) showed a meagre 0.1% increase for the March quarter to be 2.5% higher than 12 months earlier. The major increases for the quarter were in the health, education and food areas the first two of which have prices which are very much influenced by government economic policy – The Reserve Bank’s CPI measures were less favourable and showed an annual increase of around 4%.



Also significant during the week was the speech by the Governor of the Reserve Bank Mr Glenn Stevens who, while acknowledging that “the reasonable person, looking at all the information available now would come to the conclusion that the Australian economy, too, is in recession,” stated that the Australian economy is performing much better than the rest of the world. Also in this speech the Governor referred to four specific and tangible proposals which can assist the world economies to extricate itself from the current financial crisis (readers can contact me for further details).



Also the Reserve Bank’s minutes of the April meeting provide further confirmation that the Bank will leave interest rates unchanged at its next meeting on the 5th May.



More micro data showed that motor vehicle sales fell a seasonally adjusted 3.2% in March which continues the declining trend that has been apparent for well over a year.



On the corporate front one of the stand out positive result was the report by Wesfarmers of its operational performance for the March quarter. In particular Wesfarmers advised that its Coles transformation project was on track - food and liquor sales were up 6% in the quarter compared with the same period of last year, Bunnings and Target results were also positive, with Kmart the only area lagging.



BHP reported solid operational performance with increases being recorded in production of Iron Ore and Oil Production, versus declines in the other minerals.



However BHP made the comment that its exceptional portfolio of low cost and long life assets meant that its margins are among the best in the sector, and that BHP is in “a unique position to continue to invest in future growth and to leave long term value to its shareholders.”



Newcrest also reported production of gold and copper very much in line with expectations- margins increased by 36% and gold production over the next five years was expected to be up by 40%. This upbeat commentary by Newcrest helped to move its share price higher following the announcement.



Another important corporate event was the announcement by the Queensland government that it had awarded a $1.1 billion contract to build seven new state schools to a consortium including Leighton Holdings.



On a less positive note Timbercorp announced that voluntary administrators were appointed to its business.



Finally Lion Nathan advised of an indicative and conditional offer by the Japanese Kirin Holdings to acquire all the 53.87% of shares in Lion it currently does not own.



Looking ahead on the corporate front this week we will see the National Bank reporting its interim results on Tuesday with the ANZ on Wednesday, and Westpac’s a week later on the 6th May. Also we will see Lihir Gold and Australian Worldwide Exploration’s March quarter production report scheduled for release on Thursday.



This week is fairly bereft of important economic data with figures on home sales out on Tuesday and the Australian Industry Groups Manufacturing Index scheduled for release on Friday. It is a reasonable expectation that home sales may well have been buoyed by the current low interest rates environment, while the manufacturing sector is likely to continue to face difficulties.



In the United States important figures on Gross Domestic Product for the March quarter will be out on Wednesday, which are expected to show a decline of about 6% on an annual basis. The Federal Reserve Board’s decision in relation to interest rates will be out on Tuesday, but as interest rates in the United States are between 0 and 0.25% it is unlikely there will be any change. Figures on initial jobless numbers will be out on Tuesday while on Saturday morning our time the University of Michigan Confidence Index, motor vehicle sales and figures on activity in the manufacturing sector will be out.



The key figures to watch will be Gross Domestic Product and the Manufacturing Index to determine whether the glimmers of light at the end of the economic tunnel will be confirmed by these two important economic indicators.



In conclusion the market’s performance can be described as generally positive but tentative, but it should be noted that the level of volatility in the market is decidedly less than was the situation in late last year. Lower volatility combined with the stimulus provided by government expenditure policies and a low interest rate environment should assist in helping the economy show an uptick later this year and into next year. In the meantime reports by the National and ANZ banks this week will be a key bellwether about the impact of the difficult economic situation on banks’ profits over the last six months. Should these results be in line with recessed expectations, one could anticipate that the sharemarket impact will be more positive than negative.



.
We are now entering the 9th week of a sustained increase in overall share market prices. As the impact of the Federal stimulus package takes hold, and the benefits of low interest rates work their way through the economy, the upward momentum of the market is likely to continue even though the .economy will remain soft until later this year. Surprisingly buoyant US economic data last Friday should set us up for a bright start to this week.


27 April -5 May 2009
The market’s performance can be described as generally positive but tentative, but it should be noted that the level of volatility in the market is decidedly less than was the situation in late last year. Lower volatility combined with the stimulus provided by government expenditure policies and a low interest rate environment should assist in helping the economy show an uptick later this year and into next year. In the meantime reports by the National and ANZ banks this week will be a key bellwether about the impact of the difficult economic situation on banks’ profits over the last six months. Should these results be in line with recessed expectations, one could anticipate that the sharemarket impact will be more positive than negative.

20-27 April 2009
As has been commented on in the past few weekls there is increasing evidence that the low point of the market was reached on the 6th March - with progress in the market very much likened to taking to “two steps forward and one step backward”. The dichotomy in the current situation, is that while there has been decided improvement in both sharemarket sentiment and prices, the deterioration the Australian economy continues. However as the effects of the government’s fiscal stimulus and the lowest interest rates in 50 years permeate the broader economy, it is by no means certain that the unemployment rate will increase significantly above 7%. Also in the next few weeks the Federal Budget will be delivered, which can be anticipated to contain further limited stimulatory measures.

Putting all this together the outlook for the sharemarket, as has been indicated in previous weekly reviews, still remains positive for the remainder of this year.

13-20 April 2009
There is much debate about whether the current resurgence in the Australian market is what some call a “bear market rally”… or whether it really is the first indication of resilience from the sharp 55% fall from the high to low of the market in the 16 month period from November 2007 to March 2009. With all the “artillery” being fired at the economy in terms of the lowest interest rates for over 50 years, substantial government stimulus, and petrol prices being at levels equivalent to what existed about 3 years ago, sooner or later this will have to have a positive effect on the economy. As the sharemarket is a leading indicator of economic activity, one can anticipate that the sharemarket in 2009 will more likely than not continue on and upward trend.

6-13 April 2009
The quite extraordinary resurgence in the share markets since the low point on the 6th March is quite remarkable. However as was stated last week one should not get too carried away by this consolidation, as the ASX 200 index has only just surpassed the level at the end of December last year. Other major world markets have also shared in the rebound but they too are still lower than December. However as the share market tends to lead economic activity, and in the expectation that the recovery in world economies will gain traction later this year, one can anticipate that the sharemarket may well show a marked strengthening over the course of this year.

30 March -6 April 2009
While one does not want to get too carried away by the uptrend in the market over the course of the last three weeks, clearly sentiment is now decidedly upbeat. The market is now in an expectant mood watching to see whether the “rescue package” for the US financial system will actually turn to be just the right antidote for the times.

23 -30 March 2009
The market has staged quite a remarkable upturn over the course of the last two weeks, and we continue to outperform major overseas markets, albeit we’re yet to get our “head above water” in 2009. In particular so far this year the ASX200 index is still down, but “only by” 6.7%, compared with the Dow Jones which is down 15%, London by 14%, Japan by 10% and Hong Kong by 9%. With the build up to the bank reporting season being the focus of investors’ attention over the course of the next few weeks, and given the recent strength evident in bank share prices, a continued strengthening in the overall market is probably better than an even money bet. The outlook is more positive than has been the case for some time.

16-23 March 2009
The relative better performance of the Australian market compared to its overseas peers in recent times, does provide a reasonable basis for concluding that the Australian market in some way may be “bouncing along the bottom” as the ASX 200 index on Friday was very close to the low point of the market last year which was reached on 20th November last year. For this week the direction of the Australian market is likely to be driven by events overseas although, as has been previously indicated, the Australian market is no longer moving in “lock step” with overseas markets and more particularly the share markets in the United States.

10-17March 2009
The Australian market has continued to drift in the past few weeks after dropping below the November 2008 low by a small margin, and is now at levels last seen just over five years ago. With few positive catalysts on the horizon, the trend of the Australian market is likely to more closely track the movements of major overseas markets, prior to the release of our three major banks reports in a little over a month’s time

2-9 March 2009
Over the week as a whole the Australian market was a tad disappointing, given the favourable reports by major listed companies over the five trading days. Without any major corporate events due over next few weeks, (until the three major banks report) one can hope that the overall stability and low volatility which has been apparent in the market over the last three months can continue over months ahead.

26 February- 2 March 2009
As for last week,the salient feature of the Australian market at the moment is the fact that for the first 2 months of this year we have seen substantially less volatility that occurred in the latter part of last year. A levelling off in volatility is positive and a key ingredient for the regeneration of confidence in the future performance of the share market.

18-25 February 2009
Some positive elements of the current sharemarket environment, are that the volatility which has been apparent in the sharemarket in the last quarter of last year has abated significantly over the course of the last two months both in Australia and in the United States. Specifically over the last two months in Australia, there has only been two declines in the ASX 200 Index in excess of 4% in contrast to seven declines of in excess of 4% from mid October to earlier December last year. This situation is similar to that experienced in the United States.

9 -16 February 2009
CBA's result is out Wednesday and it could be worth considering in view of what looks like a reasonable dividend and the market likes the stock right now.

2-9 February 2009
The forthcoming reporting season however will be critical as far as determining the course of sharemarket prices and sharemarket activities are concerned, with next week being the first of three blockbuster weeks of company reports. The most significant near term report will be that from the Commonwealth Bank on Thursday 11 February which should be a bell-wether of just how our banks performed during the extreme financial turbulence of the last quarter of 2008 in particular


26 January -2 February 2009
2009 has started on a fragile footing and the much over-used phrase “challenging environment” will be a reasonably apt description for the next 12 months.
However with all the “economic artillery” being thrown at the economy and markets around the world, in the form of multi billion dollar stimulus packages, record low levels of interest rates, low and negative inflation, tax cuts and lower petrol prices, one can expect that sooner or later all this will have an impact on the real economy with consequential beneficial impacts for the sharemarkets of the respective countries.

22-29 December 2008
The resiliency of the market over the last month has been very impressive. Bad news has been taken in its stride which hoprfully is setting the market up for a more solid period ahead.

15-22 December 2008
There has been a huge amount of capital raising in November of over $8 billion - which is equivalent to about one quarter of the total capital raisings for a whole year a few years ago. Clearly the banks are capitalising on the government guarantee which should equip them for future growth and ability to absorb bad debts.

8-15 december 2008
One would anticipate that sooner or later the effect of the substantial reduction in interest rates, substantially lower petrol prices, and the huge fiscal stimulus in the form of around $1,400 provided to each Australian pensioner in the next week or so, will have a positive effect on economic activity. In addition, the sharemarket is a leading indicator of economic activity, and therefore one could anticipate that tentative signs of consolidation will become more apparent as 2009 unfolds.
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