Futures Trade Points To Rally In The Market
The Age
Monday October 13, 2008
A SHADE of optimism may return to the Australian sharemarket today, even though world leaders failed to spell out their plan to resolve global financial market turmoil at the weekend.
The futures market suggests the S&P/ASX 200 Index will rise on opening today, following Friday's historic 8.3% dive.But after weeks of turbulence, economists and strategists are reticent about making sharemarket predictions.The market has already fallen faster and harder than many expected, losing 42% of its value since its November 1 peak.Last week, the index closed below 4000 points for the first time in three years."Everybody is watching and waiting to see when the financial cycle will stabilise and turn," said National Australia Bank head of Australian economics, Jeff Oughton. "But markets are continuing to behave very, very bearishly."For the first time market volatility, as measured by the Chicago Board Options Exchange VIX Index, has reached almost 70 points. Even after the September 11 terrorist attacks in 2001, the reading was just above 40 points. In the past year, the Dow Jones Industrial Average has fallen 40%, London's FTSE is down 42% and Japan's Nikkei has plunged almost 53%.Investors' hopes had been pinned on a meeting of G7 finance ministers, an emergency meeting of finance ministers from the G20 group of nations, and the annual meetings of the International Monetary Fund and the World Bank.But the statement of principles released by the G7, and endorsed by other groups, failed to offer a comprehensive plan."The action to stabilise the system so far has been too small and unco-ordinated to stop the rout," said BNP Paribas head of market economics Paul Mortimer-Lee.AMP Capital Investors chief economist and head of investment strategy Shane Oliver said it was "questionable" whether the commitments offered by the G7 would calm investors."They are saying the right things, but I think given the state that markets are currently in, it would have been better for markets had they come up with something a lot firmer," he said.However, European leaders gathered in Paris overnight and were expected to devise their own rescue plan for banks.And the US Government has followed the British Government's example, committing to a partial nationalisation of troubled banks.Like the British Government, which has also moved to guarantee interbank lending, the US Treasury will provide billions to recapitalise some banks in return for an equity stake.Speaking to the IMF, US Treasury Secretary Henry Paulson acknowledged the need to improve America's regulatory regime."Once we are past this difficult period, we must turn our attention to longer-term reforms to modernise our outdated financial regulatory structure and address other weaknesses," he said.Yesterday, Prime Minister Kevin Rudd also announced three key initiatives to protect Australian consumers.The Government will guarantee all deposits held in the country's financial institutions; it will guarantee all loans that banks receive in international wholesale funding markets; and it will expand its program to buy residential mortgage-backed securities from banks and non-deposit taking institutions from $4 billion to $8 billion.
© 2008 The Age