Australian Bourse Not The Worst Performer: Uk Broker

Sydney Morning Herald

Tuesday April 19, 1988

By NEIL BEHRMANN, in London

Exactly six months after the crash, Australia has recovered by such an extent that it is well down on the list of worst-performing stockmarkets.

Using sterling as a base currency for all markets, London broker Wood Mackenzie calculates that since that fateful black day, October 19, Mexico has fallen by 65 per cent, New Zealand 43 per cent, South Africa 41 per cent, Norway 33 per cent, Australia and Singapore 31 per cent, Hong Kong 29 per cent, Ireland and Malaysia 24 per cent, Switzerland 23 per cent, West Germany 22 per cent, Italy 20 per cent, Austria 18 per cent, France 16 per cent and the UK 14 per cent.

The irony is that Wall Street, the market that precipitated the crash, is 2 per cent higher than levels pertaining on Black Monday.

Australia, with Hong Kong, had the dubious distinction of being top of the list as the worst performers soon after the slump.

But in the past two months it has recovered a large proportion of losses partly because commodities have surged and the Australian dollar has revived.

Future trends on all markets will be dependent on Wall Street and Japan.

The Tokyo market has reached new highs but average price-earnings ratios are about 70, against nine times earnings 10 years ago, while Wall Street is also nervous, especially after last week's volatility.

All the markets have rallied from their lows in the weeks subsequent to the crash. Yet many of the experienced dealers are uneasy and fear that the strength is "phony". Markets are quiet and the volume of trade is much lower than the boom times that were seen in 1987.

A truly healthy market, they say, rises with volume. A false one is accompanied by shrinking trade.

Bulls include Japanese brokers, who are encouraging clients to pour money into Tokyo and markets such as Australia and the UK.

Chartists contend that markets are forming a base for a further upward move.

Bears, on the other hand, range from international fund managers and pension funds to several old timers who maintain that the traumas of October were a warning shot for worse times to come.

Yaimichi International (Europe) exemplifies the thoughts of some major Japanese investment houses. It view is significant, because it indicates whether the huge investment flow from Japan will be geared towards foreign markets.

Markets are still wallowing in their post-crash misery "with at least half of the London investment community seemingly convinced that economic life as we know it, is about to collapse," says Yaimichi.

"That the charts resemble similar patterns to the period 1929 to 1930, has hardly helped sentiment. Also, by tapping the equity market for funds in several large rights issues, cynical fund managers are questioning the real motivation: are companies making a last gasp dash for cash before the second leg of the bear market sets in?"

However, Yaimichi counters these fears with bullish arguments.

First, the crash has failed to depress consumer expenditure, and lower interest rates in leading industrial nations should help companies and consumers alike.

Second, the industrial world's stockmarkets have recovered a greater proportion of their fall than the 1929 slump and Japan is leading the way.

Meanwhile, Australia's average PE of about 11 compares with 70 in Japan, Singapore (25), the US, the UK, Germany and Switzerland (all 13) and France(11).

Yet average dividend yields of shares on all markets are well below rates on long-term bonds.

With long-term interest rates beginning to rise, especially in the US, world markets are likely to remain nervous in uncertain and volatile markets.