The remarkable resilience of the Australian stock market today is primarily driven by one thing – the sheer weight of capital looking for a home.
Australia’s biggest prospective investor in stocks, the Future Fund, and punters as small as me are both doing the same thing – attempting to buy cheaply on a downswing.
Many investors have had the weekend to chew things over and concluded that today represented a great buying opportunity. That’s why the mooted 50-100 point fall never eventuated and the market was at one stage late morning down less than 10 points.
Having bought $500 worth shares in 10 companies on Friday, I placed about 20 buy orders over the weekend at prices ranging between 1-5% below the Friday close. Alas, only two of these got filled in the first 15 minutes as everyone else was trying to do the same thing.
That said, the All Ords did briefly drop below 6100 this morning and it twice closed about 6450 over the past fortnight, so we are still looking at a correction of more than 5%.
There’s also plenty of red ink for investors who backed recent capital raisings, including the following:
Macquarie Bank: raised $750 million at $87 in May and the stock fell below $80 for the first time since March this morning, so investors have dropped $65 million.
Wesfarmers: are now more than $300 million down on their Coles investment after shares in the retailer fell another 11c to a six month low of $14.18. The takeover is looking extremely wobbly with Wesfarmers shares well below the trigger that allows either party to walk away.
Fortescue Metals: placed 14 million shares at $36 last week, but the stock hit $31.93 this morning so those who put $504 million into the raising are already down $57 million.
Westfield: Frank Lowy’s $3 billion raising at $19.50 now looks impeccable with the shares at $18.97 because investors, including himself, have now collectively dropped $82 million.
ABC Learning: The Singapore Government can’t be pleased with their $400 million investment at $7.30 for 12% of the company given that they are already $40 million behind despite all this on-market buying by founder Eddie Groves.
Other companies that have recently raised capital that is priced above the present level include Macquarie communications Infrastructure Group and Macquarie Countrywide.
The hardest hit stocks this morning were in the funds management and financial services area because the party might be over in terms of money for jam on new equity raisings.
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