Wild trading shows we haven't seen the end of the global financial crisis

TheAustralian.com.au


AUSTRALIAN fund managers used the Wall Street swoon as a buying opportunity, but those expecting a big rebound will be disappointed.

Amid all the conspiracies around the Wall Street fall, including alleged financial terrorism, the wild trading in the US was a timely reminder that the global financial crisis is still with us and risk is real.

The Australian sharemarket has its own issues, which explains the 9 per cent fall since it hit a recent high of 5025 points on April 15.

Macquarie's Neale Goldston-Morris describes the Rudd super-profits tax as the factor plunging the Australian market into its worst sovereign risk crisis for more than three decades, and indeed the cost to the mining market is so far some $21 billion.

Wiser heads will see their way through the issue, because the concept of a resources rent tax is widely supported. It's just the fine details that are causing the angst.

When you change the rules midstream, uncertainty is maximised, but the superannuation levy means new money is pouring into the Australian stockmarket every day.

In fact, capital management is actually back on the agenda just a year after corporate Australia raised some $100bn in discounted equity.

The investment banks are doing the rounds testing interest in buybacks.

News Corporation chief Rupert Murdoch said this week that he was looking at capital management options.

The contrast is extraordinary between the wild swings in the US and the fear that led Australian companies to issue new stock at bargain basement prices.

The wild swings, of course, were made worse by algorithmic trading, which generates fast order flows searching through different markets for the best deal.

The end result is companies like Accenture falling from $US40 a share to a few cents in minutes.

This issue will be watched by the ASX when Chi-X begins a rival exchange in Australia.

Then there are exchange-traded funds, which proxy a wide range of physical stocks. That means any wild trading in the ETF can send the physical stocks lower.

Beyond this, corporate Australia is relatively lowly geared, with Macquarie figures showing net debt to equity has fallen to 30.5 per cent, or 20 per cent, below June 2008 levels. Goldman figures show interest cover will increase from 5.6 times to 8.3 times in the 2011 financial year.

The big banks have an estimated $15bn in surplus funds, but won't be handing any back soon because regulatory changes will require they hang on to more cash.

The wild Wall Street trading will underline the regulatory zeal.

Australian fund managers have been sitting on their hands amid the recent sell-off in stocks, in part because there was no reason to buy shares after they had acquired stock in last year's $100bn stock giveaway.

The giveaway was the discounted rights issues, which netted the likes of UBS some $60 million in underwriting fees alone.

The capital raisings also trashed earnings per share, which explains why UBS was told any buybacks would be limited when it did the rounds of corporate Australia recently.

It's a bit tough to buy back shares at $20 one year after issuing them at $10.

After $12.6bn worth of buybacks and special dividends in 2007 there were just $1.7bn worth last year, according to UBS figures.

The same investment banks that warned corporate Australia it needed to stock up on cash will be passing on concerns that cash levels are too high and need to be handed back to shareholders.

What's more, planned changed to off-market share buybacks will be considered an incentive for some to move earlier.

Just as the early signs of increased merger and acquisition activity are appearing, capital management activity will also slowly but surely re-emerge on the agenda.