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Australian Financial Review : October 17th 2006
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Get started online in minutes at igmarkets.com.au or call 1800 601 799 (NZ: 0800 442 150) TUESDAY 17 OCTOBER 2006 www.afraccess.com fINANCIAL REVIEW MARKET WRAPEdited by: email@example.com Deal frenzy puts record in sight Equities Nina Wan Source: Thomson Financial, AMP Capital Investors Valuations of Australian and global equities are close to or below 2003 bearmarket lows The index is running well below fair value, pointing to the likelihood of further gains BARGAIN HUNTING 25 20 15 10 7000 6000 5000 4000 3000 2000 Times Forward P/E of Australian and global stocks Points S&P/ASX 200 v fair value 88 91 93959799010305 909294969800020406 World Australia S&P/ASX 200 Fair value range Continued page 21 Apositive lead from Wall Street, strength among key mining stocks and merger and acquisition talk in the media sector combined to push the sharemarket higher yesterday. The benchmark S&P/ASX 200 Index rose 21 points to close at 5311. The broader All Ordinaries Index was up 22.5 points at 5276.4. AMP Capital Investors head of investment strategy Shane Oliver said the index had the potential to break through its May peak of 5364.5 over the next week and reach 5500 by the end of this year. But he warned that a short-term pullback of about 5 per cent was also a possibility because the mood swing over the past few months from one of concern about stagflation (where stagnant economic growth is accompanied by inflation) to one of confidence in benign inflation and growth had been too quick. ''The market to me is certainly not overvalued,'' Mr Oliver added, as the price-earnings ratio of the benchmark index was now close to 13.8 times, a level comparable with the lows reached during the 2003 bear market. In May, the index was trading at about 15 times. Mr Oliver was positive on the sharemarket's outlook over a 12-month stretch. While leading indicators suggested economic slowing in the United States, Japan and Europe, the threat of inflation had not pushed interest rates high enough to trigger a sharp economic downturn, he noted. The local bourse yesterday took its lead from gains on Wall Street, where investors were comforted by the latest signs that a weak housing market would not drag the wider American economy into the abyss. Data released on Friday night showed that retail sales in the US, excluding petrol sales, had risen 0.6 per cent in September. Adding encouragement was a report by the University of Michigan that consumer sentiment in October had risen more than expected. There was much positive energy in the media sector amid speculation about corporate activity. Publishing & Broadcasting Ltd rose 42¢ to a record $19.85, after trading as high as $20.08, amid rumours it might be selling Channel Nine to private equity buyers. During the session, the company indicated it was reviewing all its businesses and options. West Australian Newspapers hit a record $10.02 after a 33¢ climb, driven by talk that it would be a takeover target amid recent changes to media ownership rules. John Fairfax rose 6¢ to $4.48. Southern Cross Broadcasting took on 12¢ to close at $14.30. Jenkins Investment Management portfolio manager Sean Fenton said recent reform to the ownership regulations would certainly lead to a round of consolidation but this had already been factored into the share price of media stocks over the past 18 months. BHP Billiton led the benchmark index higher yesterday, rising 85¢ to $27.35 following generally stronger base metal prices. Rio Tinto was up $1.86 at $75.29. Minara Resources, buoyed by a record nickel price and takeover speculation, gained 33¢ or 6.6 per cent to $5.31. Manganese producer Consolidated Minerals was up 17¢ or 8.5 per cent at $2.18, its highest in five months. Zinifex closed 2¢ higher at $13.10 despite losing the right to a 70¢ dividend. Woodside Petroleum added 23¢ to close on $39.90 as oil traded US49¢ higher at about $US59.06 a barrel in Asia. Bolnisi Gold was up 13¢ at $2.76 as spot gold fetched $US591.90 an ounce, up $US1.50. Mr Fenton said a potential record-breaking run by the sharemarket could not be achieved without the continued recovery of confidence in the resources sector where BHP Billiton accounts for 9.5 per cent of the benchmark index and Rio Tinto, 2.1 per cent. Mr Fenton noted that stocks leveraged to the global economy, such as the miners, were the heavy losers in the post-May downturn while defensive property trusts were outperformers. ''You're starting to see signs of that reversing,'' he said. Westfield was down 15¢ to $18.75 yesterday. Macquarie Goodman fell 6¢ to $6.62. Valad Property Group trimmed 4.5¢ to close at $1.56. The benchmark property trust sector rose about 20 per cent from Commodities Currency Sydney --/+ -- 52wk 52wk close high low TWI 63.1 steady 65.1 59.9 $A/US¢ 74.97 --0.15 77.93 70.16 $A/¥ 89.50 --0.12 91.36 82.11 $A/euro 0.5987 +0.0012 0.6404 0.5763 $A/£ 0.4036 +0.0005 0.4345 0.3858 Rates Close --/+ -- 52wk 52wk high low Cash rate 6.00 steady 6.00 5.50 90-day bills 6.30 +0.02 6.32 5.51 10-yr bonds 5.735 +0.030 5.930 5.115 Close --/+ -- 52wk 52wk high low Gold (spot) 591.00 +1.50 714.80 456.90 Oil WTI 58.66 +0.46 77.03 56.14 Close --/+ 52wk 52wk high low ASX 200 5311.0 +21.0 5364.5 4357.2 Dow Jones 11960.51 +12.81 11960.51 10215.22 Nasdaq 2357.29 +11.11 2370.88 2020.39 Past 5 days S&P/ASX 200 Index Points Make informed investment decisions. In AFR Access, our unique new online research tool, you can screen individual stocks using analyst forecasts to project returns. See how stocks compare with others in their sector. Build a share portfolio and track your investment. www.afraccess.com MARKET SNAPSHOT 75.4 75.0 74.6 Australian dollar US¢ BRICs good place to start -- not stop ANALYSIS Corinne Lim Continued page 22 I t's been an unusual October so far for global equity markets, with no lasting disruptions, price swoons or outbreaks of investor hysteria. Rather, markets have merrily advanced, even those of emerging nations ± those traditionally regarded as most exposed to a United States economic slowdown. The MSCI Emerging Markets Price Index is up about 12.8 per cent this year, trumping MSCI's World Index's 9 per cent gain. The vastly popular, high-growth markets of Brazil, Russia, India and China (BRICs) have, according to MSCI's gauge, gained 25.9 per cent this year. Should investors be looking at emerging markets at this late stage in the global business cycle? After all, double-digit returns look unlikely in the developed world, with most strategists struggling to see no more than high single-digit returns, at best, for stocks. Bonds, meanwhile, are yielding between 3 and 6 per cent in most developed markets. It's no secret that emerging market fundamentals have improved substantially since the 1990s and systemic risk has lessened considerably. Fiscal and current account deficits have shrunk. There's an excess of savings in many countries. External vulnerability has been reduced. More flexible exchange rates are a buffer against external shocks and inflation isn't as much of a danger as in the past. High oil prices have helped many countries.