Market Ends With Flourish

The Age

Saturday November 29, 2008

Vanessa O'Shaughnessy, Investment Reporter

THE Australian sharemarket has produced its best week on record, sustained by a collection of generous economic stimulus packages and the resurgent BHP Billiton.

The benchmark S&P/ASX 200 Index jumped 9.5 per cent, the most in its 16.5 year history. And yesterday it finished the week with a flourish, adding 154.5 points, or 4.3 per cent to 3742.5 points.

Even the All Ordinaries Index recorded a weekly gain of 8.4 per cent, surpassing any week on record since its January 1980 introduction.

"This rally is a little bit more convincing than the one we had in early November," said Fat Prophets head of Australian research Greg Canavan.

It started with news that President-elect Barack Obama had picked Federal Reserve Bank of New York president Timothy Geithner to succeed US Treasury Secretary Henry Paulson. Rumours of the appointment had already pushed the Dow Jones Industrial Average 6.5 per cent higher.

On top of that, the US Government agreed to rescue Citigroup, by investing $US20billion in the sickly bank and guaranteeing up to $306billion in troubled assets for a $7billion equity stake.

But Australian investors were circumspect until the British Government announced its 20billion economic stimulus package, a spending bonanza that helped London's FTSE 100 Index to a record 9.8 per cent one-day gain.On Tuesday, the S&P/ASX 200 Index surged 5.8per cent. It was the second largest percentage gain in the measure's history, beaten only by the 5.9 per cent increase recorded in October 1997.

The European Union has announced a 200 billion stimulus package, although there have been no firm commitments from member states. And the People's Bank of China cut interest rates yet again, reducing them by a further 1.08 per cent.

But it was BHP Billiton that took centre stage, when it abandoned its takeover bid for Rio Tinto. BHP shares soared, recording a 41.6 per cent increase for the week. Shares worth $21.90 a week ago closed at $31 yesterday.

"With BHP unshackled by the dumping of its bid for Rio Tinto, investors took heart from its strong balance sheet," said CMC Markets senior dealer Dominic Vaughan. That helped the S&P/ASX 200 materials index push 22.5 per cent higher, even though Rio Tinto fell 22.4 per cent during the week, closing at $46.60 yesterday.

Base metals, as measured by the London Metal Exchange Index, were 3.4per cent higher. Gold added 2.2per cent to trade between $US814 an ounce and $US817 an ounce.

And the price of oil rose 11per cent this week, from a low of $US49.03 a barrel to closer to $US55 a barrel.

Mount Gibson Iron recovered some of its losses, jumping $46.3 per cent to close at 30 a share, well below its 12-month high of $3.65, while Atlas Iron rose 42.2 per cent to 64 a share, a shadow of its 12-month high of $4.08.

Nevertheless, the market still fell during November, losing 6.9 per cent of its value with the now suspended investment bank Babcock & Brown, Timbercorp and hedge fund management company HFA Holdings having suffered the most bruising losses. Over the calendar year to date, the S&P/ASX 200 Index plunged 41 per cent - dragged down by consumer discretionary, industrial and financial stocks.

Yesterday, stock broking and advisory firm Bell Financial said the "extremely difficult market conditions" were responsible for a net profit after tax that was 55 per cent lower than last year.

"Revenue and profit numbers are well down because of the reduced volume of equity transactions and the sharp decline in equity capital market activity," the company said in a statement. Shares gained 2.5, or 4.2 per cent, to 62.5. But, since Bell Financial Group floated in December last year, the share price has continually deteriorated, falling from a high of $2.36.

On the upside, the satellites of investment bank Babcock & Brown gained ground this week, even though the parent is still in crisis talks aimed at avoiding voluntary administration.

Babcock & Brown Power jumped 120.7 per cent, to 6.4 and Babcock & Brown Infrastructure rose 167.9 per cent to 7.5. However, they have both lost more than 95 per cent of their value in the past year.

Babcock & Brown Capital, which yesterday held its annual general meeting, is down 68 per cent over the past year, and selling for $1.43 a share.

Chairman Kerry Roxburgh said it had been an "eventful and challenging year" but described the company's performance over the 2008 financial year as "strong".

Renewed investor optimism helped the Australian dollar rise from a low of US60.76, to as high as US66.17.

The market expects the Reserve Bank to cut interest rates by between 100 basis points and 125 basis points when it meets on Tuesday.

However, economists at the Commonwealth Bank expect a cut of 75 basis points, taking the cash rate to 4.5 per cent - the lowest since December 2001.

In anticipation, the National Australia Bank yesterday cut its introductory one-year fixed rate to 4.99 per cent per annum, and its introductory three-year fixed rate to 5.89 per cent per annum.

NAB executive director Australia Ahmed Fahour said the Federal Government's deposit guarantee, and other government initiatives, had helped Australian banks. "This year has been extremely volatile, so we are pleased to see some relief in our fixed rate cost of funds," he said.

© 2008 The Age

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