Australian Market Notes – 6 November 2006

Reddit

HOBART AUSTRALIA, 6 November 2006 – Our national tour continues. Last week it was Adelaide, this week it’s Hobart. And well, that pretty much completes it. Back to Melbourne tomorrow, just in time to not attend the Melbourne Cup. We don’t fancy our chances of tipping the winner seeing as our last success was in 1996 on Saintly!

It would seem advisable for us to avoid any temptation to enter a TAB during the next couple of days. As for the markets, the All Ordinaries finished the week in positive territory, gaining by 1.25%. It wasn’t oblivious to matters across the Pacific, but the focus was more on domestic issues such as the stupendous profit results from St George (ASX: SGB) and National Australia Bank (ASX:NAB).

The All Ords also manage to fight off even the merest thought of October Blues, gaining by 4.7% for the month. Year-to-date the index is up by 14.6%, an excellent return so far given the markets’ performance in the previous two years.

We mentioned the National Australia Bank above. After being the banking pariah for the last couple of years following the Homeside Loan debacle and the foreign exchange currency trading scandal, the NAB last week reported a doubling of second-half profit to a scorching $2.4 billion. This was DOUBLE the previous year’s result of $1.2 billion for the same period.

Peter Vann, a fund manager at Constellation Capital Management in Sydney told Bloomberg News, “They are turning the boat around. Lending growth is holding them up.” Jack Chemello told Bloomberg, “It’s probably the best operating environment the banks have seen for a number of years. We’ve got very strong credit growth and credit quality has been exceptional.”

As of the close on Friday, NAB shares were at $39.60 after rising by 3.7% on the day. For the month the shares are up by 8% and year-to-date they have risen by 22.22%. But how long can it last? A research report conducted by JPMorgan Chase & Co, and East & Partners indicated that 80% of medium sized companies planned on borrowing more money over the next year for acquisitions and investment in the business. The survey dates from September.

Our memory fails, but what we do recall is that the imminence of an interest rate rise was not on the agenda. In fact the misty memory makes us think that most ‘expert’ commentators had convinced themselves that there was no necessity for any adjustment to interest rates until next year sometime. If the same survey were to be taken today, just two days before the next interest rate decision, we wonder whether 80% of businesses would now seem so keen to borrow.

In the United States the Dow Jones Industrial Average posted a loss for the week, dropping by 0.9% and fall below the 12,000 point mark for the first time since 18th October. For the month, the Dow Jones rose by 3.4%, and has risen by 11.8% since the start of the year.

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
Kris Sayce

Latest posts by Kris Sayce (see all)

Reddit

Leave a Reply

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au