Market still suffering Shanghai jitters
All eyes are on sharemarkets this morning to ensure the correction does not turn nasty.
The S&P/ASX 200 wobbled around a fair bit Friday morning, dropping 15 points, then piling on 30, then dropping another 15 – the end result, a gain of just 0.01% to 5809.2 by midday.
The Dow Jones followed a similar pattern on Thursday when it lost 200 points in the first four minutes of trading before recovering to close down a modest 0.28% to 12,234.34.
The S&P/ASX Small Ordinaries dropped 0.23% to 3506.2 over the same period after falling 3% on Wednesday.
While some investment advisers are recommending a flight to quality stocks since the correction, it is worth remembering the small cap sector has returned 11.8% compared with the 9% of the S&P/ASX 200 index.
Invesco portfolio manager Cynthia Jenkins, says she still expects growth of low double digits this year in the Small Ordinaries Index. “The market was spooked, but fundamentals haven’t changed. But there is nothing cheap in this market. Absolute value is hard to find.”
Meanwhile the Australian dollar was trading at US78.56 cents at midday on Friday, held down by nervous sharemarkets in the US and Australia.
— Amanda Gome
Market correction: Is there more to come?
Here is some crystal ball gazing from prominent commentators at the end of the week.
“There’s a general feeling that the market’s been overbought, so it’s due for a correction. At this time there’s nothing that suggests the underlying fundamentals have deteriorated dramatically.”
Invesco Australia’s head of Australian equities, Rohan Walsh.
“The ASX falls were natural. These sort of (market) moves we used to get regularly five, 10 or 15 years ago. So I don’t see a lot in it.”
Macquarie Bank head of equity strategy, Neale Goldston-Morris.
“The Chinese market could easily peel back another 20% to 30% in the next few months.”
David Bassanese in The Australian Financial Review.
“Global markets were looking for a reason, any reason, to correct… nothing is really wrong… the last thing you should be doing today is selling those good companies and incurring costs; but neither should you be buying more until the dust settles.”
Alan Kohler, Eureka Report
“We may see declines ultimately of 5%, 6%, 7% before the market starts to settle.”
Craig James, chief economist, Commsec.
“It wouldn’t surprise me if our market fell 5% or thereabouts and some of the resources stocks might be the hardest hit… but I still don’t see this as the start of a major bear market.”
Shane Oliver, chief economist AMP.
“There’s evidence of bubbles and no more is that evident than in the Shanghai stockmarket.”
Michael Thomas, chief economist ICAP.
To read about the world’s greatest bubbles that burst, go to Trends & Ideas.
— Amanda Gome
Retail trade up
Nominal retail sales rose by a robust 0.9% in January to $18.6 billion, well exceeding market expectations of a 0.5% increase, to be 6.6% higher over the year, according to figures released by the Australian Bureau of Statistics on Friday morning.
This follows a revised increase of 0.2% in December 2006 and an increase of 0.2% in November 2006. Alan Oster, chief economist at NAB, says the increase follows weak growth and predicts retail sales growth will continue to trend down but stay around the 3% rate for the year, thanks to past interest rate hikes.
There’s no difference between results for small and large retailers, but retailers catering to the wealthier end of the market are continuing to do better.
All states and territories had increases in the seasonally adjusted estimate, except the Australian Capital Territory (-0.3%). The largest increase occurred in Western Australia (+1.8%).
— Jacqui Walker
Pressure off retail rents
The pressure is off retail rents as the supply of new retail properties outstrips sales growth, according to the most recent National Retail Markets Overview paper by property researcher Savills. It found about 1.1 million square metres of retail projects worth more than $5 million under construction. Adding 7.6% to total enclosed retail stock in the big states, as annual retail turnover grows by 4.6%.
Savills said this will temper rent increases, especially in states showing the lowest turnover growth, South Australia, New South Wales and Victoria.
— Jacqui Walker
NSW business calls for road improvements
Both of New South Wales’ major political parties have rejected calls to build vital road infrastructure that would link the Mascot airport and Port Botany to the broader road network.
Building the M4 East motorway extension and other roadways would ease New South Wales’ notoriously sclerotic road network but would require major road works to be done in politically sensitive marginal electorates of Balmain and Drummoyne.
NSW Wales Business Chamber spokesman Paul Ritchie says there is no doubt building the M4 East extension would have cost benefits for many business in terms of transportation of goods and getting staff to work on time.
“It’s an area where we clearly need a decision from the Government and the Opposition — both sides have not made definitive statements on it because it’s a political hot potato in a key seat, but our view is that it just has to be built,” Ritchie says.
Both parties should also commit to improved public transport services to help ease traffic congestion by drawing commuters off the roads, Ritchie says.
— Mike Preston
Pressure on law firm fees
Law firms finding it difficult to retain staff have received another blow. The United States confederence of Chief Justices passed a resolution to drop admission barriers for Australian lawyers.
Law firms, which are already struggling to match the salaries US firms pay graduates and junior and mid-level lawyers, will have to try harder. In New York, graduates are earning $207,000 and lawyers with four years experience $298,000 according to figures published by The Australian Financial Review today.
As well as losing our very best graduates early in their careers, this could put more wage pressure on law firms, large and small, as they struggle to retain staff. In turn, it could mean increased fees as firms fight to keep their healthy margins.
We can thank the Law Council of Australia, the Attorney-General’s department and the Department of Foreign Affairs and Trade for the US law change. They have been lobbying for it since the US free trade deal was done.
— Jacqui Walker
IT News: Google gadgets at work
IBM has struck a deal with Google to bring the consumer internet into the office by piping YouTube and other web programs into IBM software used by millions of office workers, reports Reuters.
Users of IBM WebSphere will soon be able to use 4000 Google gadgets, including maps, language translators, and package delivery trackers, at the click of a button.
Companies that restrict workers access to the internet to keep them focused on work can use IBM WebSphere with Google gadgets to control the way workers use the products.
Mafia threat to construction industry
The Master Builders Association has called on the Federal Government to allow the Australian Building and Construction Commission to investigate and prosecute criminal conduct, reported The Australian Financial Review on Friday. The MBA says that change is required to stop “mafia infiltration” of the building industry.
Small cap wrap
Mark Saxby, the owner of national franchise chain Banjo’s bakeries has been arrested and charged with four counts of tax fraud. The Federal Police allege Saxby dishonestly declared business income to avoid paying a $335,000 tax bill.
Realestate.com.au owner REA Group today announced the $1.6 million purchase of home renovation and improvement site homesite.com.au from News Limited subsidiary News Digital.
And JB Hi-Fi has bought 11 Hill and Stewart electrical goods stores in and around Auckland, New Zealand for $17.3 million.
Economic roundup
Nervous markets will take some reassurance from the 1.4% increase for February in the Reserve Bank’s index of commodity prices, released late yesterday. Increases in nickel, gold and wheat prices reversed a 1.2% commodity price drop in January.
Australia’s balance of payment position declined 1% in 2006, with the current account deficit up $0.4 billion on 2005, to reach $53.9 billion, according to figures release this morning.
In the December quarter, the current account deficit increased by 20% thanks primarily to 143% rise in the goods and services deficit, which increased from $2.1 billion to $3.6 billion.
