The Australian market is continuing to shed its reliance on the resource sector as telecoms, media a...
The Australian market is continuing to shed its reliance on the resource sector as telecoms, media and banking stocks come to the fore.
Some six years ago around one third of the market consisted of mining companies but this weighting has now fallen to below 20%, according to Harvey Hammond, fund manager at Baillie Gifford. By contrast banks are 19.97% of the ASX index, media accounts for 16.6% and telecoms 10.8%.
One of the reasons for the change in emphasis has been the privatisation of various companies, such as Telstra, a major telecoms provider in Australia, government owned until two to three years ago, Commonwealth Bank, the listing of companies such as Cable & Wireless, Optus and the demutualisation of AMP, one of the largest life companies in the country.
Jonathan Armitage, vice president of Schroders, says that until the past year, the resources sector in Australia had been in decline. Commodity prices had been low but there has been a recovery in commodities in the past 12 to 18 months. He says: "We are seeing consolidation and takeover in that sector, it is a smaller proportion of the overall index than it was but still remains large."
According to Dougie Watt, investment manager for Far East equities at Britannic, the outlook for Australian resource stocks is positive, with strong global growth and constrained capital expenditure by mining companies. Britannic holds blue chip stocks such as BHP, a diversified global resource company.
The 1990s was a good decade for the Australian economy, says Hammond. Growth was strong while inflation was low and under control. Part of the reason for this was the various labour market. He believes the outlook for the Australian market remains reasonable, with good profit numbers from companies in the last reporting season.
The Australian dollar has been weak recently and companies with overseas earnings have been benefiting from that. It now stands at Aus$2.54 to sterling compared to Aus$2.49 at 6 September 1999. Fund managers agree telecoms in Australia are seeing increasing competition.
According to Armitage, the market has concerns over Telstra, the largest incumbent, over its deal with PCCW in Hong Kong. "Data will clearly be a strong area of growth, however, the growth may be outstripped by the decline in traditional voice revenues," says Armitage.
News Corporation, the Murdoch owned major media stock has been a strong performer this year, with value creation coming from BSkyB in the UK. It recently made good acquisitions in the US buying various TV stations. The next major event will be the listing of News Corporation's global satellite businesses in the latter part of this year.
Watt says Australia is a benign environment for corporates. He adds: "I can find attractive stock opportunities in the market especially outside the larger companies."
Britannic has holdings in Aristocrat Leisure, a gaming machine manufacturer that sells its products globally. It has exposure to ERG which manages transport systems for local authorities and governments in Australia and round the world. It is buying stock in Resmed, a medical equipment producer, which sells its products globally.
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