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...

ASIC Bans Short Selling Of Australian Shares

After another week of turmoil on the Australian stock market, the Australian Securities and Investment Commission has announced a temporary ban on 'naked' short selling. This action has been taken in an effort to restore confidence to the market - particularly the shares of those companies operating in the financial sector.

Rumour has it that hedge fund short selling was behind the plunge in the Macquarie Group (MQG) share price during the week. The stock hit a low of $25.98 on Thursday before finishing up the week at $35.90. It's believed short sellers targeted the stock in the wake of more bad news from Wall Street amid the Lehman Brothers collapse and the sale of Merrill Lynch.

Short selling is the practice of selling securities you don't own in the hope of buying them back at lower prices and pocketing the difference. It can be quite lucrative when the share price of a company drops a long way very quickly. The problem is that short selling exerts further downward pressure on the stock price and naturally leads one the ask questions about stock market manipulation.

I have read that Westpac and ANZ Bank have also been subject to pressure from short selling and this is where it can become dangerous. A plummeting share price can cause doubts in the minds of bank customers - not just investors. In the worst case scenario a run on funds could ensue. Deposit holders assuming there is something fundamentally wrong with the bank withdraw their funds en masse leaving the institution with a massive liquidity problem.

Only naked short selling has been disallowed. Covered short selling is still allowed (this is where you need to 'borrow' the shares before you sell it).

ABC Learning Shares Still Suspended

The ABC Learning (ABS) saga continues. Regular readers of Australian Stock Market Investing will know I've developed a fascination with this company as evidenced by my posts on their share price crash, the continued stock price slide, the share price recovery and finally the IMF Class Action against ABC Learning. It feels like I've been watching a car crash in slow motion. The shenanigans that have gone on here are worthy of the best (or worst) daytime soap operas.

ABC last traded at 54 cents after an alarming share price drop over the past year. The share price graph below does not paint a pretty picture - especially if you're an ABS shareholder.

ABC Learning Share Price Chart

Next I'll bring you up to date with the latest developments.

ABC requested a trading halt on 21 August, which the ASX granted.

On 25 August, ABS shares were suspended from official quotation at the company's request so the company could:

"finalise its full year results and prior period adjustments arising out of a re-assessment of accounting treatments"

The voluntary suspension was meant to last for 4 days (it's now mid-September).

Then on 29 August, ABC Learning announced it was still not in a position to release its annual results and therefore would not be able to comply with ASX Listing Rule 4.3. Listing Rule 4.3 says that a company must provide its Annual Results within 2 months of the close of the accounting period, subject to a number of exceptions. For those purists out there who want this stuff straight from the horses mouth, you can read more about Listing Rule 4.3.

The most recent announcement on 9 September indicates results should be available by the end of September 2008. They also announced the appointment of a new Chief Financial Officer (CFO) - Peter Trimble. Is that a hospital pass or what?

While there's been no official word, apparently sources have told the Sydney Morning Herald that the release of the annual accounts have been delayed over questions of the company's solvency. Ernst & Young have taken over the audit role from Pritcher Partners and the rumor is that KPMG has been called in as arbiter over a dispute about the correct accounting treatment of some items.

I'm sure the last thing Eddie Groves and the ABC Learning board want is for Ernst & Young to issue a qualified audit opinion, especially if the qualification relates the company's status as a going concern.

Having said all of that, provided ABC doesn't become the Australian stock market's latest corporate fatality, it may be an interesting situation. It operates what should be a profitable business. I believe there is a board restructure taking place and if they were able to reduce their debt to more realistic levels and concentrate on the Australian business, who knows - maybe something beautiful can grow...

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.

Australian Stock Market Floats For August

There is a real theme to the upcoming Australian Stock Market Floats for August 2008. You guessed it - small resources stocks. Although there are only a handful of stocks due to list on the ASX next month, I thought it would still be worth running my eye over them.

Below is the meager list of upcoming Australian Stock Market IPO's.

RVE - Riviera Resources Limited (August 1)
EMG - Emergent Resources Limited (August 7)
IVA - Ivanhoe Australia Limited (August 7)
AGN - Australian Gemstone House Limited (August 14)
OHZ - Opal Horizon Limited (August 15)
MET - Mt Isa Metals Limited (August 22)

Riviera Resources Limited is trying to raise $2,500,000 through the issue of twelve and a half million shares at twenty cents each. The company plans to extend on the exploration work already done on the Three Sisters Project in Queensland with a view to eventually mining any gold or other base metals discovered.

Emergent Resources Limited want to raise $4,000,000 at twenty cents per share. Emergent Resources are looking for iron, copper, lead, zinc, gold, nickel and uranium as part of the Beyondie Iron Project in Western Australia.

Ivanhoe Australia Limited is much more ambitious. It's looking for $125 million at $2.00 per share. Ivanhoe is seeking to explore and develop copper, gold and uranium deposits starting with its "highly prospective" Cloncurry Project.

Here's something a little different. Australian Gemstone House Limited is looking for opals and sapphires. To undertake this task Australian Gemstone House will need $30 million at $1.00 per share.

Not to be outdone, Opal Horizon Limited is also looking for opals. Opal Horizon not only wants to look for opals, it also wants to be involved in the "mining, purchasing, processing, wholesaling and marketing" of opals. To that end, it is raising $6 million at $0.25 per share.

And the last cab of the rank is Mt Isa Metals Limited. They'll be looking for mineral deposits to develop in central and North-West Queensland. For this task, they're seeking $7 million at twenty cents per share.

I haven't looked at any of these companies in detail yet so if you're interested make sure you do your own homework - as you should with any Australian Stock Market float. You should not consider any of the above to be recommendations.

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.

Walker Thompson Australian Stock Market Investment Software

*** Important Update ***

Please read the comments at the bottom of this post if you have been approached be Walker Thompson or are considering one of their products. Take particular note of loving mum's experience.



What do you know about automated stock picking software? The reason I ask is that I've noticed a number of visitors arriving at my blog having searched for "walker thompson trading software" (or some variation thereof). I've never used any products like this but I'm curious about how they work and how many people use this sort of stock picking software.

So I'd be interested to find out how many people have used this type of software, particularly to invest in the Australian stock market, and what their experience has been. Do these packages use fundamental analysis to pick stocks or do they use some sort of technical analysis (ie. charting/momentum/trends, etc) to spit out the recommendations of what shares to buy?

To be honest, I have my doubts about how well something like this would work over the long term. Any time I buy shares, it is only once I've not only had a close look at all of the important financial ratios but also read a couple of company's annual reports as well as any other important announcements which have been released to the ASX.

Incidentally, I've since tried to find out more about walker thompson sharemarket software but none of my searches have turned up anything interesting.