Bumpy ride in year of the horse

IF the world changed on September 11, it seems a trifle too early for it to have changed back again. That is why investors will have to be especially careful in 2002, which is the year of the horse in the Chinese calendar. Wall Street jumped the starting gates a few weeks back when the Dow Jones galloped 20 per cent to reclaim the 10,000 level. Watch out for a stewards’ enquiry.

Alan Greenspan’s 11 successive interest rate cuts have brought the price of money in America to less than 1.75 per cent, the lowest for 40 years. But corporate profits continue to disappoint and staff layoffs are mounting by the tens of thousands.

Australia has led a charmed life. GDP is growing at between 3 per cent and 4 per cent, and seems likely to keep that up until the tail end of the footy season at least. Consumer confidence is rising. Tumbling mortgage payments and cheaper petrol are underwriting solid Christmas spending.

Our stock market has proved the most resilient in the world. But this is where it gets tricky. Some big institutional investors have been selling Australian safe haven shares and buying in the battered bourses of Hong Kong, Singapore and North Asia.

Their theory is that companies there are more heavily geared to a bounce back in the US.

The advice that investors should have a diversified portfolio with a swag of international shares is sound, but there are still opportunities at home.

Some pundits forget that corporation tax has been clipped from 36 per cent to 30 per cent.

If management cannot lift profits now, given a buoyant economy, strong retail demand, soft wage pressures and the lowest interest rates in living memory, you have to ask what climate they are waiting for.

Briefcase will be sticking to defensive shares in companies with a history of paying dividends of around 5 per cent.

If they can manage even a similar capital appreciation next year, the combined return would beat inflation three times over.

Bolder spirits betting on a strong global recovery will be loading up BHP-Billiton, Coke-Amatil and News Corp. Favoured domestic cyclicals include Boral, Harvey Norman and Qantas.

New Zealand decision just not cricket

FOODLANDS supermarkets group boss Trevor Coates is exasperated by the stubborn refusal of the New Zealand authorities to allow the company to buy Woolworths (NZ) from its Hong Kong owners. In its second thumbs down to the Perth company, the kiwi version of our ACCC employed a double negative, declaring it was “not satisfied the acquisition would not lead to a substantial lessening of competition among supermarkets”.

Foodland was prepared to pay more than $NZ600 million for Woolworths. That would have lifted the market share of its subsidiary Progressive supermarkets from 24 per cent to 43 per cent. Local grocery chain Foodstuffs has 55 per cent. Progressive would have gone hammer and tongs against Foodstuffs in what could only have been good news for consumers. Instead, it is Foodland that has been stuffed, with the share price marked down 50 cents to $11.57 on the news.

The mandarins in Wellington have gone to extraordinary legal lengths to close the gate on the Australian company.

Coates has done an excellent job since he got behind the till at Foodland. He is considering appealing the decision to the third umpire by taking the case to the Privy Council. Several analysts think he should just get on with his life. Salomon Smith Barney says the New Zealand knock back would allow Foodland to shift its attention to a more aggressive attack in the domestic market, where “the longer term value that will be attributed to a larger Australian food retail operation will be higher than a mature New Zealand food operation”.

The brokers say Foodland is the best value stock in the retail sector.

They rate the company an outperformer over the next 12 months because of the underlying business direction and strong cash flow.

The group is now well placed in Queensland with its newly acquired Franklins stores. The cash not stumped up to buy Woolworths could be used to acquire independent supermarkets and strengthen the Foodland beach head among the banana benders. There is a 5 per cent fully franked dividend while you wait.

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