Australia Market Report of August 12: Big Banks Deserve a Buy

Sydney, Aug 12, 2008 AEST (ABN Newswire) - Yesterday the Australian share market closed moderately stronger driven by an improvement in financial stocks. But actually Australia's big four banks have lost almost A$80 billion in share market value since reaching highs late last year. The financial stocks have been hit by specific issues which include fears of bad debts or how much the credit crunch will squeeze banks margins.

US stocks closed modestly higher overnight as falling oil prices eased inflation. Crude oil prices sank overnight as the market worried about weakening demand, particularly in the eurozone and in China, after Chinese oil imports fell sharply. But a strengthening US dollar weighed on the prices of commodities and energy stocks while consumer stocks rallied broadly as large-capitalisation stocks moved higher.

The Australian share market closed up over half a percent on Monday. The benchmark S&P/ASX200 index rose 39.9 points to 5026.1, while the broader All Ordinaries rose 31.7 points to 5069.3.

Today resource sector may fall after declines in oil, gold and base metal prices. At 6.22am, the Sydney Futures Exchange's September share price index futures contract was 24 points higher at 5045.

Key Economic Facts and Figures

The Reserve Bank of Australia says the fall in borrowing is partly the result of a slump in debt-funded takeovers, but it says investment is weakening in non-mining sectors. Its quarterly review of the economy shows bank lending to business grew by only 0.3 per cent a month in the June quarter, after averaging 1.8 per cent a month through last year. It says the slowdown in borrowing has affected both large and small businesses and has been led by the finance, wholesale and retail sectors.

The Australian Bureau of Statistics (ABS) said total personal finance commitments rose 5.8 per cent in June, seasonally adjusted, to $6.667 billion, compared with $6.301 billion in May.

Total commercial finance fell 2.0 per cent in June, seasonally adjusted, to A$33.326 billion, from A$34.007 billion in May.

The Reserve Bank is predicting an economic slowdown so severe that 100,000 people will be thrown out of work in the next 12 months, pushing the unemployment rate to 5 per cent and possibly higher if the financial crisis worsens. The economy has been generating jobs growth of 2.5 per cent, or about 250,000 jobs a year, since 2002 to leave the unemployment rate at 4.3 per cent. But in the financial year ahead, RBA expects the economy to generate barely 80,000 new positions, with jobs growth of just 0.75 per cent failing to match the forecast rise in the number of jobseekers.

Consumers are paying the highest average interest rate on their credit cards in 15 years, a study shows. The average rate on a credit card is 19.5 per cent, credit-card comparison website www.click4credit.com.au says.

M&A News

Jupiter Energy Ltd (ASX:JPR) has signed a revised memorandum of understanding which sets out the terms upon which Jupiter proposes to acquire 100pc of the North-West Zhetybai oilfield (NWZ), situated in the Mangistau Basin, Kazakhstan.

Macquarie Equities said SAI Global (ASX:SAI) may be the acquisition target for larger players in the testing and standards sector such as Intertek, SGS or Bureau Veritas. However, Intertek may only be interested in SAI Global's certification' assets.

Important Corporate News

St George Bank (ASX:SGB) has reaffirmed its annual fiscal 2008 earnings guidance after posting a 12.5% rise in cash profit for the first 10 months of the year.

Australian engineering services company WorleyParsons (ASX:WOR) reported a 53% jump in full-year profit, riding a boom in mining and energy projects. Net profit rose to A$343.9 million for the year to June, from A$224.8 million a year earlier.

Babcock & Brown (ASX:BNB) has downgraded its annual calendar 2008 profit guidance and forecast a fall in first half earnings. The troubled investment house said its 2008 interim net profit was expected to be 25 to 40% below the A$250 million in the 2007 first half.