ANZ push further into China & Indonesia
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ANZ continues to drive it’s growth strategy in China with two big announcements for the week. ANZ announced Christine Ip as the new head of banking operations in China and increased it’s stake in the Indonesian bank PT Panin Bank.
The ANZ has been a long term investor in the PT Panin Bank and took the opportunity to buy another 8.4% of the bank from institutional investors for US$114 million. The increased holding takes ANZ to 38.3% ownership of the seventh largest bank in Indonesia.
Meanwhile, ANZ announced Christine Ip as the head of operations for the China banking operations in what ANZ is aiming to become one of the top four foreign banks in China.
Christine Ip joins ANZ from Standard Chartered Bank and has strong credentials and contacts to drive ANZ in China.
Bank of England & ECB slash rates
The Bank of England and the European Central Bank (ECB) have slashed rates to respond to faltering global demand as the world economy balances of the edge of the abyss.
The Bank of England cut rates to 1.5% down from 0.50%, the lowest rate in 314 years in an attempt to stop the economy from contracting. The English economy is in a dire position as the economy is set for it’s worst year since 1946 as the economy continues to contract at a record pace.
Meanwhile the ECB cut rates to 2% down from 2.50% as the economy continues to struggle and indicated more cuts could be on the way in an attempt to stimulate economic demand.
RBA set to cut by 0.75% in February
With the Australian economy struggling and fears of a doubling in the unemployment rate over the life of the current economic cycle the Reserve Bank are likely to react swiftly again by slashing rates by 0.75% in February. This would take rates to 3.50%.
The money markets have already priced such a cut into the market as the Australian economy balances on the edge of a knife with increasingly negative news each day.
With concerns of rising unemployment and falling GDP the interest rate cuts seem a certainty as the RBA is forced to react to prevent failing confidence in the economy. While the cuts with be a huge boost for home owners the general consenus is for harder times ahead as consumers prepare for a tough period in the economy with many fearing job cuts.
Is Deflation set to rise?
Inflation seems dead in the leading world economies with the US announcing that inflation grew at it’s slowest price since 1954. The falling inflation rate leads to fears that deflation, one of the most feared concerns for financial watchers is set to re-appear.
Japan have been struck with deflation on and off for the best part of 20 years and the Japanese market has not reached anywhere near it’s highs of the late 1980s. With consumer prices falling heavily along with the price of oil driving the price of goods and services lower the leading world economies could soon be looking over their shoulder at the rise of deflation.
Deflation is an economy destroyer and not only destroys confidence but can lead an economy into a very deep recession or even a depression with the price of goods tomoorow being cheaper than today. This flows through into job cuts and lack of wage increases. It slowly tears out the heart of the economy.
If your looking at the impact of deflation in the economy then closely look at the impact it has had on Japan in the last 20 years. On the surface Japan may not look to be that bad but the damage deflation has done to the psyche of the economy is stark.
Let’s hope we are not seeing the signs of deflation emerging in the global economy.
Will investors snap up Westpac at $16?
With the Westpac share purchase plan due to close on 30 January 2009, questions are beginning to mount on whether investors will fully subscribe to the $500 million retail offer.
Investors have started leaving the market again this week after a promising start to 2009 but the global crisis has started to bite hard and the signs for a very tough 2009 for Australia is looking likely.
Households have reduced spending and are tightening budgets as the fear of job losses in the economy increases. Some financial analysts are forecasting unemployment at 9%, against the current 4.5%. If this does not strike more feat into the economy then I don’t know what will.
The question for investors is why invest today at $16 when Westpac may be $13 by mid-year. Westpac closed on Friday at $16.11.
Westpac Retail Share Offer
The Westpac retail share offer opened on 5 January 2009 and closes for existing eligible shareholders on 30 January 2009. The Westpac offer will raise approximately $500 million from retail investors and will boost the banks capital levels.
The retail offer supplements the recent $2.5 billion institutional share placement that boosted Westpac’s tier one capital levels to in excess of 8%.
Westpac are offering retail investors shares at $16 with the option to obtain them lower should the share price fall below $16. Westpac will determine the share price of the offer based on the daily volume weighted average of the share price of the 5 trading days up to and including the 30 January 2009. Thus shareholders will pay $16 at the most.
Shareholders have been offered to take up parcels of $1000, $2500, $5000, $7500 or $10,000. Shares will be alloted on 11 February.
Westpac have attached one proviso to the offer that if in excess od $500 million is subscribed for in the offer they reserve the right to scale back applications.
The offer will dilute the earnings per share for 2009 by several percent but will not have any impact on the Westpac dividend unless Westpac change the payout ratio. This would be very unlikely and would result in a heavy sharemarket sell-off should such an action occur.
Where to on interest rates in 2009?
Well this is what most Australian’s want to know in 2009. How low will interest rates fall to prevent Australia from a hard landing well it would seem we may be aiming for a 2.00 to 3.50% target range in 2009.
The world recession continues to roll on and bad news is getting more and more each day. In fact it could be said the negativity in the market has dulled somewhat as people are getting used to hearing bad economic data every day.
Australia while still holding up well is certainly not immune, 2009 will likely show a healthy rise in the unemployment rate and we are likely to hit record low interest rates. Some economic forecasters are expecting the RBA to reduce rates to as low as 3.00%, that is a 1,25% cut from current levels.
This is excellent news for home owners and those entering the housing market but it must also been seen in the light of the harsh economic times ahead. For the RBA to lower to those levels things will have become considerably worse for the domestic and global economy.
I had forecast some month’s ago we were likely to hit 3.75% in 2009, it now seems almost certain we will go lower. In fact the money markets are forecasting a cut of 0.50% in February, this will lower the RBA rate to 3.75%.
On the flipside the funding costs for the banks are also decreasing so we should be seeing cuts from the big banks on their rates in the coming months outside of any reduction by the RBA. But without healthy competition in the matket I suspect this unlikely.
How do you think 2009 will pan out? How low do you think the RBA will cut rates?
ASX records worst year on record
The ASX recorded it’s worst year on record in 2008 with the Standard and Poors ASX 200 falling 41.3% and the All Ordinaries down by 43%.
The previous two worst years were in 1930 during the Great Depression when shares fell 33.9% and 1974 with a fall of 32.2%/
Some analysts are forecasting 2009 to recoup some of those losses as investors slowly move back into the sharemarket.