Stockmarket to test fresh low - The Age 23-6-08
Investors dumping loss-making stocks to offset profit gains are likely to drive the Australian sharemarket to a fresh low in the final week of the current financial year.
The main Australian index, the S&P/ASX200 is trading down 18% since June last year taking the market to its first loss in five years, and the worst performance in 20 years.
The negative session on Wall Street on Friday night has created a dour tone for the Australian market in the final full week of trading in the current fiscal year. Today, a further further 50 points has been wiped off the ASX200.
The pain over the past year has been most evident in the diversified financials, but Centro Properties has taken the title of the worst performer, with shares in the stricken property group down 97%.
The Australian banks are now trading down 33% since November, which analysts said was the bleakest performance since the market's post-recession recovery in the mid 1990s.
Traders have predicted with the ASX200 at 5238 that it could reach its low for the year of 5039, which was recorded in March.
Technical trading barriers have been established at the January low of 5186, meaning sell-orders will be triggered if the market trades down to that level.
The route will be deepened in the next week, as fund managers square off books before the new financial year, and tax-loss selling comes into effect.
ABN Amro Morgans advisor Lisa Jarvis said stocks that have traded at a loss all year, especially illiquid small to medium cap companies, will be dumped to offset the profits made in resources.
On the positive side of the ledger, Felix Resources is the best performing stock of the ASX200 having gained 334%, ahead of Riversdale Minerals, Centennial Coal, Macarthur Coal and Fortescue Metals.
The performance of the Australian market has been worse than most of the world's major bourses as the Dow Jones is down 11.36% for the year while London's FTSE is off 14%.
The US banks have incurred the greatest damage with the shareprices of Citi, Bank of America and JP Morgan Chase among the top 10 worst stocks of the Wall Street bluechips.
''There is definitely tax loss selling but what we have noticed is that there does not seem to be any buying interest to pick up the selling pressure,'' Ms Jarvis said.
''I think what is happening is that there are none of the larger fund managers sitting on the buy side so there is only selling pressure and the shorters in the market - there's nothing stopping them having a field day.''
Ms Jarvis said the market's sentiment was still to avoid the highly-leveraged stocks with complicated financial structures. The concerns about debt have been highlighted with Allco stock down 96%, ABC Learning 90.46%, Octaviar 82.5% and Babcock and Brown 81%.
''People are still concerned about debt,'' she said.
''A few months ago you had a lot of CEOs who were talking about working their balance sheet hard, they were gearing it up.
''Investors were demanding that companies be active with their balance sheet but now the reverse is playing out. The market is slaying anything that they think might have trouble rolling over their debt.''
The majority of superannuation funds will record a negative returns for the year, and some funds have warned the performance will be the worst in 20 years.
Labor's superannuation minister Nick Sherry has warned investors to view the fund's performance on a long-term basis, and has asked ASIC to encourage funds to highlight their 5 and 10 year returns as part of their annual reports.
''Super is a long-term investment so educating members to consider the long-term picture is critical,'' Senator Sherry said.
''Even if a fund has produced a negative return in certain years, it may still be a sound investment which produces strong returns overall.''
The market's rout has prompted Deutsche Bank to recommend an ''overweight'' position in cash for its portfolios, given the 8%-plus interest rates on offer for some cash management accounts.
The bank's equity strategist, Tony Brennan, said there was the chance commodity prices could weaken in the year ahead as the global economic slowdown dampened the appetite for Australian-based resources.
The investment bank is 'underweight' resources and has almost zero exposure to energy stocks despite the sector making up 8.3% of the Australian index.
''The performance in Australia has been very diverse, reflecting the difference influences. Resources shares have remained strong in sharp contrast to more cyclical industrial stocks,'' Mr Brennan said.
''We envisage the resource sector at least pausing in its strong performance and even weakening relative to the rest of the market.''
