Giving you all the latest in Stock Market Information as it happens

Month: October 2010

$A to stay above parity in 2011, survey

Australian exporters and importers expect the local currency to hold above parity with the US dollar for most of the first quarter of next year, a survey shows.

But the Commonwealth Bank Aussie Dollar Barometer shows a significant variation between importers and exporters over whether to hedge against a possible decline in the currency.

The survey shows the average expectation between importers and exporters is for the currency to be sustained at 1.08 US cents, above CBA’s forecast for the unit to be at 1.02 US cents by the end of March 2011.

About 85 per cent of farmers and miners plan to use currency hedging to manage their currency risk in the next three months.

But only 38 per cent of businesses involved in communications, finance and property plan to use currency hedging in the next three months.

“The disparity in hedging plans may reflect different dependence on international trade,” said the survey, released on Friday.

“The bottom line is exporters have a greater exposure to foreign currency compared to importers and so have a higher need to hedge currency risk.

“In Australia, primary producers tend to be export-oriented while other industries are focused domestically.”

At 1426 AEDT on Friday, the Australian dollar was trading at 97.66 US cents, up from its closing level of 97.59 US cents on Thursday.

Discord over China’s guitar timber trade

Western musicians delight in the world’s best and most exotic guitars, but it is claimed Chinese-made instruments are fuelling an illegal trade in rare timber.

Environment watchdog Global Witness says rare and sought after timbers, such as ebony and rosewood, are being cut down in the forests of Madagascar and exported to Chinese guitar factories.

Some companies, however, are promoting their use of sustainable timbers for guitars.

Maton is Australia’s best known guitar maker, and director Anthony Knowles told Radio Australia’s Asia Pacific program they pioneered the use of alternative Australian wood when making their first acoustic guitar in 1946.

He said his company makes a point of using Australian alternatives to classic guitar timbers for their handmade acoustic and electric guitars.

“In recent times, we’ve used bunya pine as an alternative to spruce tops and we use Queensland maple as an alternative to mahogany. All our necks are Queensland maple,” he said.

But Mr Knowles says Maton is increasingly feeling the pressure in the market as they compete with Asian factories, where the ethical sourcing of timbers is not a priority.

“The real problem is cheap manufactured guitars in China. They are making hundreds of thousands of guitars and they flood foreign markets with them and sell them cheaply,” he said.

A report this week by Global Witness says China’s trade in furniture, and to a lesser extent musical instruments, is fuelling illegal logging that threatens forests in the African nation of Madagascar.

Huge amounts of wood are used to satisfy the Chinese furniture market, with enormous timber beds selling for as much as $1 million.

But Reiner Tegtmeyer, an international forestry expert with Global Witness, says musical instruments are also part of the problem.

International guitar makers received a wake-up call in November last year, when US authorities raided the Nashville factory of Gibson guitars on suspicion they were using illegally sourced timber from Madagascar.

Embarrassingly, the raid prompted Gibson’s chairman to take leave of absence from the board of Rainforest Alliance, which certifies environmentally friendly products.

The US has strict legislation, under the Lacey Act, which requires detailed listings of the type and amount of timber in each instrument.

But Mr Tegtmeyer says consumers also have a part to play.

“[By] buying a guitar that has been produced using ebony from Madagascar, consumers are indirectly contributing to the destruction of the biodiversity of the unique forests of Madagascar,” he said.

Mr Knowles acknowledges Maton do require more exotic species, such as the honey-coloured satinbox, but when they do, they ensure it has been acquired responsibly, using sustainable harvesting.

He says Australia should consider toughening the legislation that controls the import of musical instruments to stop the flow of illegal timber.

Fiji invites tenders for first casino

Fiji’s military government is calling for expressions of interest in developing and operating the cash-strapped Pacific nation’s first casino.

Tourism Minister Aiyaz Sayed-Khaiyum on Friday said a casino would help Fiji attract more visitors from the emerging markets of China, India and from Europe, in addition to building on the potentially lucrative US market.

The invitation to gaming companies will be a litmus test for international investor confidence in the nation, where the economy has faltered since a military coup in 2006 led by current Prime Minister Voreqe Bainimarama.

Sayed-Khaiyum said there were obvious economic benefits from a casino development, which could create jobs and raise additional revenue for the government.

He did not give a timeline for the casino, saying Fiji was looking for reputable international gaming operators to develop a casino that would increase leisure activities in the country.

“At the same time we do not want to harm Fiji’s tourism brand, which the government and the people of Fiji have invested so much in,” Sayed-Khaiyum said in a statement.

He said laws would be put in place to minimise possible negative social impact from the casino, citing Malaysia and Singapore as countries where such protective mechanisms had been successfully installed.

Tourism is Fiji’s major export earner following a decline in its former economic mainstay, the sugar industry.

More than 540,000 international visitors, 65 per cent of them from Australia and New Zealand, flocked to the island nation’s famed white sandy beaches last year, according to official data.

The World Bank this month said Fiji’s economy was expected to grow 0.5-1.0 per cent in 2010, only partially recovering from a 3.0 per cent contraction last year.

It said Fiji’s public debt, including state-owned enterprises, was about 67 per cent of gross domestic product and government revenues this year were likely to fall below budget forecasts.

The non-profit organisation International Budget Partnership this week ranked Fiji bottom in a survey of budget transparency covering 94 countries, saying publicly-available information on government accounts was inadequate.

Qantas unsure when dividends will return

Qantas Airways Ltd can’t say when dividends will return with $US17 billion ($A17.4 billion) of planes on order and a credit rating to safeguard.

Chairman Leigh Clifford told the airline’s annual general meeting in Adelaide that future dividend payments would be a judgment call, considered against the airline’s capital needs.

Asked by a shareholder if Qantas wasn’t paying dividends because it had a cash flow problem, Mr Clifford said it had a big plane acquisition program and needed a strong credit rating.

Credit rating is “very, very important” when you have a $US17 billion acquisition program, Mr Clifford later told journalists.

“So we have got to be very conscious of our credit rating because a number of those planes, probably the vast majority of them, will be financed by debt,” he said.

“It is a constant balance. Just when you think we are out past a shore break in the airline industry, along comes a volcano in Iceland and knocks you towards the boundary, so we have always got to be alert for that.”

Dividends were “always a judgment call”, he said.

“We intend to grow our business and we intend to grow it profitably, so the expectation is that we would be able to pay dividends,” Mr Clifford said.

But he couldn’t say when they were likely to return.

“Well look, we don’t want to give any projections. What we have said is it is something that is on the minds of the directors always at the half and full year, but we are not giving any projections.”

Woodside buys final 50% of WA permit

Woodside Petroleum Ltd has entered into an agreement to take full ownership of an exploration permit in the Carnarvon Basin offshore from Western Australian.

The oil and gas producer said it would purchase the final 50 per cent of permit WA-404-P from Hess Exploration.

Following the deal Woodside will own 100 per cent of the permit, which contains the Martell, Noblige, Larsen and Larsen Deep gas discoveries, and other prospects.

“The acquisition is consistent with Woodside’s drive to obtain sufficient gas volumes to support potential expansions of the Pluto LNG Park,” the company said.

The completion date for the transaction is November 5.

Big guns cash in and move out of ASX

THE big end of town has quietly been selling shares into the huge rise in ASX Ltd’s share price since Singapore Exchange made its $8.4 billion takeover offer, threatening to leave small investors holding the can should the deal flounder as political opposition to the deal grows.

With the deal in its current form coming under increasing fire from independent MPs, BusinessDay has confirmed that Perpetual Investments is one institutional shareholder that has taken advantage of the 20 per cent share price jump and sold shares.

Perpetual sold shares early this week when the shares were trading in the mid-$40 range and considered the sale ”opportunistic”. Perpetual declined to comment.

Announcing the takeover on Monday, ASX Ltd and Singapore Exchange valued ASX shares at $48.

But the share sale by a key investor can be taken as a sign that institutional investors want limited exposure to the combined entity, which will not be offering franked dividends, has a lower dividend payout ratio and is loaded with debt.

ASX shareholders have seen their investment sag this year as the government threatened to end the company’s monopoly and allow competition for securities trading.

Investors piled into ASX shares on Monday after the tie-up with Singapore was announced, sending them up 20 per cent to their highest since early 2008. ASX shares were trading at about $26 in July and hit a $41.75 high on Monday.

At the same time investors were buying on news of a deal, existing shareholders were heading for the exit.

Trading volume was up to five times the daily average of normal trade in ASX shares at 10 million shares.

ASX has no shareholders above the 5 per cent disclosable threshhold. At the start of October, Perpetual disclosed it had sold shares to take its stake below 5 per cent. As Perpetual now holds less than 5 per cent, this week’s trades will not have to be disclosed.

From the moment the deal was announced, questions were asked about whether Treasurer Wayne Swan would agree to waive restrictions on any one shareholder owning more than 15 per cent of the exchange and whether the Foreign Investment Review Board would deem the bid in the national interest.

If the major parties cannot agree, the government’s wafer-thin majority in Parliament could force its hand on the issue.

Three crossbench MPs yesterday voiced their opposition. Australian Greens MP Adam Bandt, West Australian Nationals MP Tony Crook, and Tasmanian independent Andrew Wilkie do not support the sale.

Independent Bob Katter has already said he will oppose the deal.

Should the deal fail, ASX’s share price is likely to collapse, leaving shareholders, including those who bought in at this week’s premium, with the prospect of a revised inferior offer or remaining a domestic exchange as global exchanges continue to consolidate.

Advisers on the deal said yesterday they were comfortable with the state of the deal despite the concerns in Canberra.

Market experts have questioned the national interest of the Singapore deal, including prominent equities analyst Roger Montgomery, who flagged the possibility of Singapore onselling ASX.

”The SGX may not be the final owner of it,” Mr Montgomery said.

”The first question that needs to be examined by policymakers, including the Prime Minister, is whether Singaporean ownership is permanent.

”This is important because the national interest in this case is the access to capital Australian companies depend on as well as protection for investors from permanent destruction of capital.

”If the ASX is sold to a foreign owner, will they control the rules or costs that Australian companies must meet in order to raise capital?

”When a company makes an overpriced acquisition, as the SGX appears to be doing, they run the risk of having to sell themselves or the very assets they paid to much for.

”In other words the SGX may not be the final owner of the ASX and we cannot know who will be. Once it’s in play, that’s it. Potentially anyone can own it.”

Goldman Sachs analysts said yesterday the impact of the deal could also result in the merged ASX-SGX company being neither large enough nor liquid enough to trade in the ASX’s premier index, the S&P/ASX 200.

Analysts said the market capitalisation of the combined company trading in Australia weighted by its Australian ownership would be 35 per cent smaller than the existing ASX, meaning it would fall from being the 30th largest stock to the 49th largest stock.

Discount dogfight hurts Qantas

Qantas has disappointed investors who were hoping for an earnings upgrade, as the airline stuck to its previous guidance today, highlighting that demand for travel on its international routes was still ‘‘patchy’’.

In a sign a recovery in travel is slower than hoped, Qantas said its domestic operations continued to be impacted by a discount dogfight for leisure travellers between Jetstar, Tiger Airways and Virgin Blue.

Some analysts had been expecting Qantas to release improved profit guidance at its annual meeting in Adelaide today, but Qantas’s chairman, Leigh Clifford, told shareholders that while a global recovery was flowing through to its international operations ‘‘it is early days and it is patchy’’.

‘‘There remain challenges for two of our biggest markets, the US and the UK,’’ he said.

Similarly, while a recovery was under way within Australia, the leisure-travel market had been negatively impacted by airlines putting on more flights.

Shares in Qantas fell 1 cent to $2.87 in early trading today.

A strong Australian dollar against most currencies, notably the greenback, has spurred demand for travel overseas, although this has come at the expense of domestic tourism.

‘‘While the Australian dollar’s strengths has been a positive impact on the group’s US dollar costs, this has been partially offset by a fall in the value of foreign currency revenues and the increases in fuel prices of late,’’ Mr Clifford said.

Qantas has previously said that its underlying pre-tax profit in the first half of 2010-11 ‘‘may be materially stronger’’ than the $267 million it made in the first half last financial year. However, it has said fuel prices, currency fluctuations and general trading conditions could rapidly affect earnings.

Australia’s largest travel agency, Flight Centre, has also resisted raising its earnings guidance despite a rebound in demand in the first quarter of this financial year. The company told shareholders yesterday that it would be ‘‘premature’’ to do so after just one quarter.

Qantas would not say today when it was likely to resume paying dividends.

Mr Clifford said Qantas was mindful of shareholders wanting a resumption of payments but it was a ‘‘balancing act’’ with a large capital program for fleet renewal and maintaining its investment-grade credit rating.

IMF warns of housing debt risk

The International Monetary Fund says Australian house prices could be overvalued by up to 15 per cent, leaving highly indebted households vulnerable in the event of a property market slump.

The mission chief for Australia, Ray Brooks, today said the fund would soon publish a report on the rise in Australian house prices over the past 20 years.

After looking at the long-term drivers of house prices, including population and income growth, he said the report would show “moderate” overvaluation of 5 to 15 per cent.

Speaking from Washington, Mr Brooks said that, if this overvaluation led to a slump in prices, households with high debt levels would be hardest hit.

“There is a risk that a decline in house prices, if it were particularly sharp, could have some impact on household spending and could lead to some households reducing their high levels of debt,” he said.

On the other hand, further growth in income and population could keep prices near their current levels that the fund sees as excessive.

“You’ve got continuing strong population growth in Australia and continuing income growth, so that’s a possibility.”

The unreleased report is based on data from the past two decades until earlier this year.

In recent quarters, house prices have softened slightly, after last year growing by more than 10 per cent in many capital cities.

A report out today from RP Data showed house prices in Sydney, Brisbane and Melbourne gaining, but remaining flat in much of the rest of the country.

Mr Brooks played down the impact of a correction in prices on Australia’s banks, because of their track record of more prudent lending than banks in the United States.

A separate report by Australian Property Monitors this week said house price growth was virtually flat at 0.1 per cent in the September quarter.

Mr Brooks made the comments after the fund released a report saying the Australian economy would grow at 3 to 3.5 per cent in 2010 and 2011, above the 3 per cent predicted by the Treasury in its pre-election forecasts just three months ago.

This report also said Australia’s dollar was overvalued and the proposed mining tax should be broadened to other minerals besides coal and iron ore.

BA, Iberia log profits as sector pilots recovery

, On Friday 29 October 2010, 13:14 EST

British Airways and Iberia of Spain posted healthy profits on
Friday, mirroring European peers Alitalia and Lufthansa, as the
global economic recovery drives growing demand for air travel.

BA, which is merging with Iberia, said it rebounded to a net
profit of 107 millions pounds (122 millions euros, 170 million
dollars) for the six months to September, its first interim
profit for two years.

“We are … benefiting from an improved economy, which we hope
will pick up in 2011. We don’t see any evidence to support a
double-dip (return to recession),” BA chief executive Willie
Walsh said.

Iberia posted a net profit of 53 million euros (73 million
dollars) for the nine months to September, recovering from a
loss of 182 million euros a year earlier.

The healthy results were the latest evidence of a strengthening
recovery in the airline industry which was savaged by the
worldwide economic slump that hammered demand for air travel.

“The general rebound in economic growth since the lows of late
2008 has aided,” said analyst Keith Bowman at the Hargreaves
Lansdown brokerage.

“Demand for business passenger travel has improved — a rebound
in the fortunes of the world’s financial centres is likely to
be an underlying factor.

“General improvements in trade activity have also assisted
cargo volumes,” he added.

German flag carrier Lufthansa, meanwhile, reported on Thursday
that its net earnings tripled in the third quarter while
Italy’s Alitalia also reported soaring profits for the period.

“A recovery does indeed seem underway — however we are a very
long way off from previous profit margins and even further away
from sustained profitability,” noted FBE Aerospace analyst Saj

“With so many mergers in the pipeline, all the hard work could
be undone as airlines work for synergies and amalgamation of
their businesses — so it’s not over yet.

“There are still significant risks and challenges ahead for
almost every player in Europe,” he warned.

BA’s first-half net profit compared with a net loss of 217
million pounds in the six months to September 2009, the airline
said in a statement.

The performance reflected steep cost-cutting and came despite
recent travel chaos earlier this year that was caused by the
Icelandic volcanic ash cloud and cabin crew strikes.

“Our concerted efforts to introduce permanent structural change
across the airline has led to a reduction in non-fuel costs and
a return to profitability,” Walsh added.

BA revenues rose 8.4 percent to 4.45 billion pounds in the
reporting period, while operating costs declined 1.5 percent.

Pre-tax profit hit 158 million pounds, compared with a
year-earlier loss of 292 million and more than double market

Next month, BA and Iberia shareholders will vote on their
merger deal that is due to be completed in January 2011,
creating the second largest airline group in Europe after

Despite healthy profits, BA saw its share price slide on Friday
as the group warned that the economic outlook was uncertain —
and slammed a tax hike in Britain next week.

On Monday, the British government will ramp up Air Passenger
Duty (APD), which is levied on all flights from British
airports. The tax will rise by 55 percent for the most
far-flung destinations.

“While positive, the economic environment continues to be
subject to uncertainty, to which the increase in APD is
unhelpful. We continue to focus on managing our costs,” the
British carrier said.

The BA-Iberia tie-up will combined Iberia’s strong position in
Latin America with BA’s presence in Africa, Asia and North

Following the merger, Walsh will become chief executive of a
new umbrella company which will control the two airlines,
International Consolidated Airlines Group (IAG), while Iberia
chairman Antonio Vazquez will be chairman.

Earlier this month, BA launched a transatlantic alliance with
Iberia and American Airlines, pledging cheaper fares and more
travel choice.

City house prices unchanged in Sept

Australian city home prices were virtually unchanged in September, with national dwelling values up just 0.1 per cent in the month, the latest RP Data survey shows.

Over the September quarter, city dwelling values fell 0.4 per cent, according to the RP Data Rismark Hedonic home value index, released on Friday.

While Sydney values rose by 0.8 per cent, Melbourne values increased by 0.7 per cent as Perth values plunged by five per cent in the three months to September.

Canberra recorded the largest growth of 1.9 per cent in the third quarter.

Over the period, Brisbane values fell 1.4 per cent, while Adelaide and Hobart were down 0.6 per cent, and Darwin values fell 0.3 per cent.

The overall weak performance in September follows annualised double-digit capital growth since the start of 2009.

The survey showed national city dwelling values were up 7.9 per cent over the past 12 months.