Australia Market Report on July 28: Pick Up the Oversold

Sydney, July 28, 2008 (ABN Newswire) - The Australian share market fell over three per cent on Friday after troubling news from National Australia Bank (ASX:NAB) related to losses from investments in risky US mortgages, and a weak lead from Wall Street. But gains on US markets on Friday night are expected to encourage investors to pick up stocks that were oversold during Friday's 3 per cent fall.

US markets lifted on lower crude oil prices, a better-than-expected report on orders for durable manufactured goods, and a report showing only a modest decline in new home sales of 0.6 per cent in June which raised hopes that the US housing slump had hit bottom.

Last Friday, the Australian market benchmark S&P/ASX200 index finished down 173.6 points, or 3.37 per cent, to 4,970.5 while the broader All Ordinaries shed 157.4 points, or 3.03 per cent, to 5,031.

At 6.50am on the Sydney Futures exchange, the September share price index futures contract rose 24 points to 5006.

Key Economic Facts and Figures

There is a 30 per cent chance that the slowing Australian economy will plunge into a recession, according to leading share brokerage. An ABN Amro Morgans report said the country faced the possibility of a much sharper economic slide than previously anticipated. It estimated the chance of a recession in Australia at 30 per cent.

Statistics from the Real Estate Institute of Australia put vacancy rates as low as 0.5 per cent in Darwin, 1 per cent in Sydney, and 1.6 per cent in Melbourne. Vacancy rates of less than 3 per cent tend to show strong demand for rental properties - and give landlords an excuse to raise rents - while vacancies of higher than 3 per cent tend to show an oversupply of properties.

The RBA Governor, Glenn Stevens, has made it crystal clear that the next move will almost certainly be down. The RBA believes inflation has peaked. It believes that business and consumer confidence has been hit sufficiently to trim the excess spending that that was not healthily sustainable.

Today, Housing Industry Association (HIA) new home sales data for June is released along with the National Australia Bank second quarter business confidence survey.

IPO and M&A News

International investors are close to finalising a deal to buy the $1.16 billion Australian portfolio of Centro Properties (ASX:CNP). LaSalle Investment Management, which has $US20 billion of funds under management, is said to have bought Centro's US properties for $US714 million (A$728.62 million) - about 10 per cent below their book value - after Centro bought the assets a year ago.

Felix Resources Ltd (ASX:FLX), an Australian coal miner with a A$3.5 billion market value, has received several takeover approaches in recent weeks. In an unsourced report, the paper said Felix's board had subsequently allowed several parties to start due diligence, but did not name any of the potential buyers.

Important Corporate News

ANZ Banking Group Ltd expects its 2008 cash earnings per share to fall between 20 and 25pc on the back of a rise in bad debt costs. ANZ (ASX:ANZ) said today it was likely to book credit impairment provisions of around A$1.2 billion (in its second half due to the ongoing deterioration in global credit markets. National Australia Bank (ASX:NAB) on Friday booked another A$830 million in losses from its exposure to US mortgages, sending its shares down as much as 15 per cent.

Qantas Airways Ltd (ASX:QAN) announced today that Alan Joyce would become Chief Executive Officer of Qantas upon the retirement of Geoff Dixon.

Australand Property Group (ASX:ALZ) has reported a 79 per cent dip in first half profit as the company revalued real estate assets and wrote down the value of some projects. Net profit for the six months to June 30 was A$25.55 million, the property developer and investor said on Monday. The company is forecasting a full-year profit decline for the residential businesses.