Australian Stock Market News - Week Ending 17/10/2008

Well it was another turbulent week on the Australian stock market. The all ordinaries index was up and down like a yo-yo. The all ordinaries opened the week at 3,966, reached a high of 4,404, a low of 3,937 and finally closed at 3,945. This is a far cry from the high of over 6,800 reached by the all ords mid last year. The chart below shows the movement in the all ordinaries during this week.

Australian Sharemarket Chart

I can't believe how volatile the Australian sharemarket has been over the past month or so. Share prices collapse one day, rally the next only only to slump again. There are probably some very important lessons to be learned about human behavior and market psychology from all of this. As a long term value investor, I can't believe that the underlying value of some of these companies can vary so much from day to day.

You can understand why some people see shares as such a risky investment. I wouldn't like to be trying to learn about the stock market right now as I think the fear pervading financial markets would make it very hard on a beginner just starting out.

Surely this will be a great time for value investors. I noticed that renowned value investor Maple-Brown Abbott has been busy in the last week picking up shares in Paperlinx, Boart Longyear and Emeco. Another fund manager I keep my eye on is Lazard. They were buying shares in Specialty Fashion Group this week.

While I'm on the topic of fund managers, I noticed that Platinum Capital has announced a 1 for 4 rights issue. Kerr Neilson is a pretty canny investor so I was initially surprised to see him raising capital with the share price so low. But I guess that he must see lots of opportunities right now and will be able to put the new funds to good use.

The last thing I want to mention today is that it is now October. The significance of this escaped me until today. For those that don't remember, the crash in 1987 occurred in October and since that time October has been a regular period of weakness in the Australian stock market. Even more to learn about market psychology...

Australian Stock Market Hits 2 Year Low

Shares on the Australian Stock Market hit their lowest level in 2 years today. The All Ordinaries index closed just under 4,800 after falling about 1.5%. And this was after a fall of over 1.6% yesterday. You need to go back to early 2006 to see the All Ords at a level below this. The following graph shows the performance of the Australian Stock Market over the past 2 years.

Performance of Australian Shares

The sell-off was triggered by news of the collapse of Lehman Brothers over the weekend and the sale of Merril Lynch. Lehman Brothers, a large United States investment bank, filed for bankruptcy protection under the US Bankruptcy Code - from what I've read, it's the largest filing in US financial history.

As you would expect, Aussie financial stocks were down significantly on news out of the US. All of the major Australian banks withe the exception of Westpac were down today. Investment bank Macquarie Group (MQG) was down $4.55 yesterday and another $2.66 today to finish the days trading at $36.80. And poor old Babcock & Brown (BNB) was down a lazy 33.5% today to a closing share price of $1.05 - a long way off its 52 week high of $31.08.

While the recent financial turmoil has claimed it's share of victims on the Australian stock market, I wonder whether the worst is over yet. Investors should be taking a good hard look at their portfolios, particularly shares in companies with excessive debt. And if you're taking advantage the bargains on offer at the moment, discretion as advised.

ABC Learning To Face Class Action From IMF?

I've written about ABC Learning (ASX Code: ABS) a number of times recently, and it seems there may be more bad news on the way. I read in the Business Section of The Age yesterday that IMF will be funding a class action against the Australian Stock Market's largest childcare provider.

According to the article, the lawsuit hinges upon an alleged lack of disclosure by ABC. In February of this year $73 million of develper fees was disclosed for the first time. This $73 million along with a couple of other one-off items was enough to allow ABC to report a profit, but without these one-off items, there would have been a rather nasty loss. Apparently any litigation would relate to the material nature of these developer fees.

In an announcement to the Australian Stock Exchange a couple of days ago, ABC Learning were at pains to point out that it "has not received any claim or any notice of claim" with regard to the action from IMF. It said that IMF's announcement is simply stating it's intention to fund any possible claim - depending on the level of participation.

IMF is a provider of funding and support in litigation similar to the one mentioned above. It seems to have had some success recently including a settlement with Aristocrat (ALL) for which I'm sure IMF will earn a hefty fee.

ABC Learning Shares closed at 83 cents today, down half of one cent.

ABC Learning Share Price Recovery

Shares in ABC Learning were one of the better performing issues on the Australian stock market today. After reaching new lows this week, they finished up 30% today still a far cry from the $8.00 plus all time high, but much improved from their low of 65 cents this week. Only yesterday I wrote about this week's share price weakness in ABC Learning Shares Plumb New Lows.

The recovery appears to be in response to an announcement released to ASX today which said that ABS had completed the sale of 60% of its US Business to Morgan Stanley Private Equity. The announcement also stated that ABC Learning has received the cash proceeds of the sale. As far as I can tell, some of the proceeds will be used to reduce debt levels at the company.

The transaction values the US Business at US$700 million. ABS still retains ownership of 40%. One of the interesting parts of this deal is a call option for ABC Learning to buy back the 60% from MSPE in 3 years. It seems they really want to keep pushing into the US.

Today's share price recovery is impressive. While the Australian stock market is up overall today, the ABS gains put it way ahead of the index. The investing public are obviously happy with the deal.