Economy

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Australian Market Wrap - #123 KEN HOWARD, RBS MORGANS

Mortgage One - Tuesday, September 27, 2011

It has been a relentless run of negative days on our market. It's good to see the market up over 3 per cent today with the banks and miners leading the charge.


We've got to remember that nobody is going to ring the bell when you hit the bottom, and at some point you do have to start averaging into the market. There's a lot of value out there, but with those European issues yet to be resolved so we're still waiting for some guidance there.

Short-selling has certainly been a feature of the share market since the GFC, and a feature of the market in the last couple of months, we've seen some of the biggest names in the top 50 gapping down, 3, 4, 5 per cent in a day. The rally today has seen some of those stocks reversing that trend.

Today we saw likes of Iluka up over 10 per cent. Macquarie Bank was up the best part of 10 per cent. Incitec Pivot was up 9 per cent. Such large swings always points to a bit of short-covering going on in the market.

Even some of those stocks outside the top 50: Lynas Corporation is a good example - it's a $2 billion company, up 30 per cent today. So there certainly has to be a degree of short-covering that's driven today's rally, as well as longer term investors looking for value.

In today's market there was a switch out of the defensives into the growth stock. Most of the defensive stocks had a fairly lacklustre day, Woolworths, Telstra, AGL, Macquarie Airports were lucky to be up half a percent.

Goodman Fielder is set to raise as much as $259 million in new capital with a fully underwritten rights issue. I'm sure it's very disappointing for the suffering shareholders of Goodman Fielder that they need to stick their hands in their pocket one more time to try to see this company turn its prospects around.

If they do sell a couple of billion dollars worth of bread and butter, it should be a defensive business, but that hasn't been its track record. With a new CEO, looking at a re-structure, and also looking at having to refinance $500 million next year, is obviously opting to raise some capital earlier, rather than later.





 



 


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