Resourceful Investors Take Cake As Bank Interest Wanes

The Age

Tuesday July 1, 2008

By IAN McILWRAITH

MEMBERSHIP of the "banks are evil" club may well have grown, thanks to the performance of the Australian sharemarket over the past year.

Depending on how market statistics are sliced and diced in what has been a horror year for most - unless your portfolio was purely energy and resource stocks - banks were the stand out contributors to the fall.

Despite the Australian banking community's comparative strengths and lack of direct exposure to the subprime crisis spawned in the US, financial stocks were firmly spanked in the wake of the market's retreat from its peak in November. Even yesterday, ratings agency Moody's was pointing out that while costs had climbed for Australian banks, because money is more expensive to borrow, the outlook was stable.

As Goldman Sachs JBWere told clients yesterday, however, after the S&P/ASX 200 finished the year 17.7% down at 5215.3 points, the market had shed 1124 points in a year and almost 40% of that came from the five largest banks. National Australia Bank accounted for more than 120 points, Commonwealth another 101, ANZ 99, Westpac 53 and Macquarie Group just under 50. The falls outweigh their current 17.5% share of the index, but that has reduced because bank shares have been sold down so heavily.

Instead, it was a year in which you had to love mining to make money, with the resources and energy sectors the only two of the 10 groups that make up the S&P/ASX 200 to produce positive returns. BHP Billiton, Fortescue Metals, Rio Tinto, and Woodside Petroleum were the heavyweights that offset the banking drag on the market.

As the market limped to a 21.7 point loss on yesterday's close, brokers were still pointing to evidence of end-of-year selling as the reason for the index turning around from trading for most of the day in mildly positive territory, to recording a loss in the last half-hour.

Deloitte's annual survey of initial public offerings showed just what had happened over the year, with total raisings nearly halving to $5.87 billion. They had been running at more than $10 billion for each of the past four years. More ugly was the average return for investors, which dropped to a 3% loss for the year, compared with a 91% gain in 2006-07. Less than one in three IPOs were still above their issue price at year's end.

And while the sharemarket was finishing its worst year in 26, and its poorest June since World War II, the Australian dollar edged up to its best levels in 25 years, closing at US96.44.

The pundits are now calling parity with the US currency within weeks. CommSec economist Savanth Sebastian said his estimate was September, although he expect the greenback to strengthen as the US economy recovered towards year's end.

Late yesterday investment bank UBS was arguing that the correction in the Australian equities market was looking overdone. It, like Commsec and others, are calling the index to finish calendar 2008 above 6000 points - which means they think the bears will go back into hibernation and investors can hope for a gain of 15%-20% over the next six months.

That would mean adding some $200 billion back to the market's value, much of which, depending on what tack fund managers take, would partly restore the fortunes of depleted superannuation returns. And - here's a shock - banks, having fallen so far, are being tipped by many brokers as the stock to buy on the recovery road.

© 2008 The Age

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