MELBOURNE AUSTRALIA 31 January 2007 - "Aussie shares at record closing peak on M&A boom" blurts Reuters. And for good reason. We are almost getting bored of writing it, but the All Ordinaries gained 0.8% to close at 5,791.50, leaving the index only 2% away from breaking the 6,000 point mark.
The All Ordinaries first closed above 5,000 points in March last year, before spending the subsequent nine months wavering around either side of it. Now the index suddenly seems to have some momentum behind it, and it would take a brave investor to bet against it climbing to above 6,000 by March this year.
The previous milestone from 4,000 to 5,000 took from December 2004 to until March 2005, or sixteen months. At this rate could we see the All Ords crack the 7,000 point mark by the end of this year?
If the mergers and acquisitions keep on keeping on then why not? Matt Williams, portfolio manager at Perpetual told Reuters "M&A is expected to continue and anecdotally we hear that there are still a lot [of] deals in the pipeline to play out over the next 12 months."
He went on to say, "We are really noticing now the complacency in the market, and an absolute lack of fear, and the M&A boom has helped to add to that."
While Troy Angus, fund manager at BT Financial told Bloomberg News that "Last year's spate of takeovers is going to spill over in to this year, that's for sure. Buyouts will still be a factor helping some shares."
Hence the query about whether the All Ords can make it so quickly to 7,000 points this year. It's not that we necessarily believe that it will. Nor that we necessarily believe that it should. Besides, whether we think or believe it will or won't is of little importance, the market collectively will make up its own mind on that one.
A colleague of ours said a few months ago about the US markets, "If the Dow [Jones Industrial Average] breaks 12,000 it will go to 15,000." Now, you may or may not agree with that statement. But again it doesn't necessarily mean that it is worth 15,000, just that the momentum and the 'lack of fear' will take it there.
But, back to the local market. News that Santos (ASX: STO) was raising its bid for Queensland Gas Company Ltd (ASX: QGC) from $1.26 to $1.30 per share; credit reference company Veda Advantage (ASX: VEA) had received a takeover offer from Merrill Lynch (NYSE: MER) and Pacific Equity which saw its share rise by 17%; and Symbion Health (OTC: SYHTY) advanced by 10% following strategic buying in the company's shares from rival Primary Health Care Ltd. (ASX: PRY).
Further, Rinker (ASX: RIN) gained over 2% as profits came in above expectations, increasing speculation that the takeover offer made by Mexican company Cemex will need to be increased.
Scott Marshall, head of industrial research at Shaw Stockbroking told Bloomberg, "Cemex will have to increase its bid. Rinker's prices have been strong and they've had strong profit growth even with the weak housing in the US. My belief is we're at or near the bottom of the market."
A brave call seeing as the US housing market hasn't been in the doldrums for all that long. We'll just have to see who is the first to blink - Rinker, or Cemex.
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- The Cemex-Rinker Takeover Continues
- Cemex Plays Chess with the U.S. Housing Market
- Cemex to Rinker - No More Pesos for You
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About the Author
Kris Sayce began his financial career in the City of London as a broker specializing in small cap stocks listed on London's Alternative Investment Market (AIM). At one of Australia's leading wealth management firms, Kris was a fully accredited adviser in Shares, Options and Warrants, and Foreign Exchange. Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. In late 2006, he joined the Melbourne team of the leading CFD provider in Australia.
