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Australia's blue-chip buys

Friday 4th February 2000

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Ignore high-tech Australian stocks at your peril, PETER V O'BRIEN tells investors

No serious investor wanting to invest more than a few thousand dollars can afford to ignore Australia - and that applies even when theory says the New Zealand market is undervalued compared with Australia's.

While many New Zealand private investors might gravitate to heavyweight Australian companies, many others offer a breadth of market impossible in New Zealand.

That has become particularly relevant now that internet-connected, e-mail, e-commerce and the general emphasis on high-technology stocks have a become dominant theme in worldwide equity investment.

New Zealand has Telecom, Advantage Group and Sky TV in that category plus several wannabes, whereas Australia has a well-developed sector based on companies with their foundations in general telecommunications. The massive rise in share prices for companies associated with the internet started in the US but has spread elsewhere, including Australia.

Some of those price bubbles will burst. That has been the case with every sharemarket fad over the whole of investment history. There are even boom industries of the past that no longer exist.

All the evidence points to the technology boom not fading but probably accelerating and eventually producing new industries currently unknown.

International broker Credit Suisse First Boston (CSFB) has produced a 700-page report, The New Millennium Project, which examines the "implications of the communications revolution and the emerging new economy" on the outlook for a range of industries. A 60-page summary is available in this country. A key argument in the report was contained in the answer to the question: is the knowledge economy really different?

"Yes, the IT revolution enhances every other technology invented, changes the price mechanism and, not least, tends to be associated with increasing rather than decreasing returns."

The report says the information revolution is as important as the agrarian revolution and the industrial revolution. The technology enhanced most other technologies as well as providing wholly new ways of doing business.

It identifies the winners in the new economy: "There are three clear industry winners that are global, on-trend demographically and knowledge-based: technology (including telecoms), healthcare and financial services."

Assuming that analysis is correct and also assuming "technology" includes various sections of the media, that leaves New Zealand stocks as a body well behind Australia's in the medium to long term because, with very few exceptions, we lack the companies in the three industries described as winners.

Short-term fluctuations in basic economic and industry trends will obviously affect share prices for individual stocks, but people looking for the longer-term winners would be foolish to ignore Australian stocks in favour of their New Zealand counterparts. They might be foolish even on a short-term basis, in view of the Australian market's outperformance relative to New Zealand in recent years.

Any New Zealand's private investor unconvinced about Australian equity investment should examine the industry sectors of the all-ordinaries index. Close to 50 companies are involved in industries where technology is the key to future developments and that technology is moving at an ever-increasing pace. New Zealand has no more than eight such listed companies, at best.


TOP 20 AUSTRALIAN COMPANIES

Based on market capitalisation (1) (at January 21, 2000)

CompanyNo shares (m)Price ($A)Mkt cap ($Ab)
1Telstra (2)4288.97.9734.20
Telstra21335.0610.79
2BHP1772.320.1235.66
3Nat Aust Bank1492.722.9534.26
4News Corp (3)2021.916.6333.62
5C/wealth Bank902.225.5523.05
6Cable & W'less Op3774.05.4620.61
7Westpac1848.110.6419.66
8AMP1089.216.2717.72
9Rio Tinto587.629.5117.34
10ANZ Bank1568.110.8517.01
11Lend Lease506.319.499.87
12WMC1142.78.239.40
13Brambles228.240.009.13
14Coles Myer1159.67.728.95
15Woodside666.611.587.72
16Pub & B/casting649.011.647.55
17Fosters1725.94.177.20
18Colonial933.16.596.15
19Woolworths1147.05.185.94
20St George Bank454.411.025.01

(1) Based on listed ordinary shares only;

(2) Currently divided into the two tranches;

(3) Company has 21.34 million listed preferred shares with market capitalisation of $A30.73 million at 20.1.00

Source: Reuters/The National Business Review

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