By Peter V O'Brien
Friday 21st March 2003
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Those with life assurance policies are usually involved in Australian stocks because the life companies have to invest the premiums and operate diversified funds.
Demutualisation of Australian life mutuals gave thousands of New Zealand direct equity positions in AMP and Axa Asia Pacific (formerly National Mutual).
Some may still be holding their shares, despite a considerable capital loss on paper.
That they paid nothing for the shares hardly eased the pain of seeing AMP, for example, take a price hiding in the past year, going from a 2002 high of $NZ23.76 to $NZ8.95 on February 19.
Most of the top 20 Australian companies by market capitalisation had share price declines since the end of 2002 and there is no certainty they have yet hit bottom. The situation was summed up neatly in a recent letter to the Dominion Post where the writer criticised public organisations such as the Earthquake Commission for investing on international sharemarkets.
Apart from the perhaps overlooked point that such "losses" are usually unrealised, on fund managers' "mark to market" procedures, the writer made a sound observation when commenting on views that falls in international markets made their shares "cheap."
"This is, of course, rubbish. It's like saying that if you can buy an orange for $10 a year ago, it is now really cheap if you can buy it for $5 today."
The argument had simplistic elements, understandable when people have to deal with complex issues in the tight space given to newspaper letters, but most of it was valid.
US high-tech stocks went to crazy prices before they were slashed in 1999-2000. A share that sold at $US200 in 1999 is not necessarily cheap if it's now priced at, say, $US50, assuming the company is still in business.
It is definitely possible Australian share prices could decline further this year if other markets react to international political tensions, irrespective of the fundamental health of the underlying company.
Profit announcements from Australian companies in the December half-year reporting round are showing reasonable gains, although that may be no valid guide to 2003/04. Groups with international diversification have to offset normal benefits from their spread of interests against the dangers or worldwide upheaval.
Special one-off factors also affect performance. News Corporation, for example, has interests throughout the world, including New Zealand with its stake in INL. The company's profit for the six months ended December was $A735 million compared with a loss of $A1.034 billion in the corresponding period of the previous year, the latter including a loss of $A1.23 billion from US associates.
News Corp's latest result was after a $A364 million loss from associates. The company's exposure to the US entertainment market and that industry's consequence association with advertising could find a war with Iraq and general economic issues affecting profitability in the second half.
Companies operating solely in Australia, with minor offshore interests, are in a different position. Retailer Coles Myer said its first-half sales increased 5.5%.
The company reaffirmed the forecast given at last year's annual meeting that net profit would be $A425-435 million for the year ended June 30, 2003. That would be an increase of about 20% over the last year.
The inclusion of five banking groups on the list of Australia's biggest market capitalisations (NBR, Mar 14) is a feature of that market. New Zealand investors in Australian banks have an interest, albeit small, in earnings generated from New Zealand economic and business activity.
ANZ and Westpac operate under their own names here, National Australia Bank owns Bank of New Zealand, and Commonwealth Bank has control of ASB.
Subject to currency and general risk factors, there are advantages in Australian investments for New Zealanders seeking international equity diversification.
We speak the same language (sort of), Australia is our nearest time zone, travel is easy and relatively quick and we are familiar with their financial, political, economic and legal structures.
Above all, we are aware of what their companies do in general terms, thereby reducing reliance on brokers' analyses of esoteric groups in some other countries.
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