Banks outperform the market
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The recent performance of the Australian banks on the ASX has been impressive. All the banks have risen strongly off recent lows and while gains have moderated future share price gains look certain.
During the recent global downturn the gains in market share by the Australian Big 4 banks has been staggering. As the smaller lenders and part players in the market have either disappeared or been acquired by the big four the future gains of the big banks has been even further cemented.
The real issue in the Australian banking sector now is the lack of competition in the market. As the big banks have approximately 90% of the market share alternate market lenders lack the mass and capital to compete. This will lead to future out-performance of the banks and increasing lending margins that will impact home buyers much more than investors.
ANZ Share Purchase Plan
ANZ retail investors can invest in the ANZ Share Purchase Plan offering investors the chance to subscribe for up to $15,000 worth of ANZ shares.
Shares can be applied for in lots of $1000 at a discounted price of no more than $14.40. With the current share price around $16.00 this offers investors an instant profit of around 10% at current market valuations.
The ANZ share purchase plan is likely to be well subscribed and scaled back applications would be unlikely considering banks would be happy to accept as much capital as possible from the market at the moment.
The deadline for applications is 2 July.
Wall Street hits lows of 1997
Wall Street fell overnight to a low last reached in April 1997 amid the worsening performance of the US economy.
On a seasonally adjusted basis the US GDP for October to Decelier fell by 6.2% annualised. The contraction in the US economy was far worst than first thought and reflects the pain occuring in the world’s largest economy. The decline in the GDP was the worst performance since 1982.
The Dow Jones slumped 1.66% to 7062.93 to take the loss for the week to in excess of 4% as the economy sees no end in sight to the gloom. Dragging the market lower was the performance of Citigroup and General Electric. The market also had its worst February in over 70 years as the market tumbled 12%.
Where will the ASX bottom?
How much more will the ASX and the leading stocks in the Australian market fall? Well this is the question virtually ever investor would love to have an answer for but one thing could be said the market will head lower in the near term.
To presume the market has bottomed would be incorrect, the S&P ASX200 index is at 3402.4 while the broader All Ordinaries index is 3353.
Many factors are likely to impact the market in the near term the least of them being global markets which have fallen more heavily in recent times than the Australian market. The Australian market has held up relatively well but that has created a false expectation for investors as some have re-entered the market.
The sharemarket is likely to head lower and 3000 is not unrealistic in the months ahead as investors realise the market will not bounce back to it’s highs anytime soon. The market will need to find it’s own levels based on forward earnings potential and an increasingly jaded investors who are feeling poor from the lose of value to their investments.
Just as in boom times investors feel wealthy from their rising portfolios they become greater consumers and splash out, the same happens in reverse when the economy is tanking and investors are losing money, they stop spending.
The next few months will test the resolve of investors and I suspect we will see a low on the S&P 200 around 2800 most likely during 2009. I don’t necessarily think like we will see a solid recovery in late 2009 like many analysts are forecasting. 2009 will be a tough year for investors.
Australian Bank Watch will increase it’s focus on the sharemarket in the coming months to monitor movements and trends that may affect the economy and sharemarket in 2009.
Commonwealth Bank in profit upgrade
The Commonwealth Bank surprised the market with a profit upgrade of 20% above market expectations and announced a likely profit of around $2 billion for the half.
The announcement comes on the back of strong credit growth and strong deposit growth. The profit announcement due on 11 February is still likely to be about 16% less than the previous profit of $2.38 million for the December 2007 half but indicate the negativity towards the banks in the market.
The Commonwealth Bank share price surged today on the positive news.
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.
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.