Investor update

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Information current as at 31 October 2008

The month began with the US Congress finally passing the $700bn rescue plan, authorising the Treasury to purchase ‘troubled assets’ from US financial institutions as well as to provide equity capital where needed. However, this did little to halt the stock market plunge. By mid-month, the plan had morphed into a bank recapitalisation program (taking its cue from an earlier plan from the Bank of England) under which the Treasury would spend $250bn buying equity positions in major US banks. Europe and Japan followed suit with similar proposals.

Early in the month, the Reserve Bank of Australia (RBA) cut official interest rates from 7.00% to 6.00%. Soon after, the US Federal Reserve, the European Central Bank and the Bank of England cut their cash rates by 0.50%. Despite the rate cuts, equity and credit markets remained under extreme pressure. At a weekend meeting, leaders of the G7 and G20 countries agreed to use all available tools to support struggling financial institutions and prevent their failure.

In a move calculated to put Australian banks on an even footing with European banks and to quell depositor concerns, the government announced that it was guaranteeing ‘bank deposits’. Unfortunately, there were unintended consequences that the government and the finance sector are now endeavouring to resolve.

Commodity prices continued to tumble, on continued fears of a global slowdown as well as the beginning of fears of a slowdown in China, with bulk commodities coming under increased pressure. OPEC’s decision to cut oil production by 1.5m barrels per day did little to arrest the sliding oil price, which fell around 33% during the month.

In stock trading news standout performers for the month were Goodman Fielder (+19.1%), Bendigo & Adelaide Bank (+13.6%), Amcor (+7.4%), Tatts Group (+5.0%) and Sonic Health (+4.7%).