Capital Flows

THE Australian Small Industrials market was down approximately 2% over the week, with the market remaining directionless given the ongoing NASDAQ volatility.

Institutions continue to adopt a cautious approach given the large number of recent profit downgrades from Australian companies (both large and small cap) across a wide range of industries over the past few months.

A number of factors continue to present earnings uncertainty and consequent risk for a large number of sectors including post Olympic activity, the introduction of the GST, the low $A, the high oil price, and an uncertain retail environment.

Consequently, Institutional activity continues to remain subdued within the Australian Growth Companies sector, with the market action remaining focussed on those companies with both robust short term EPS growth and a defensive, low risk quality to those earnings.

Consequently, companies such as CXP, IFM, KAZ, LAC, RMD and SRV continue to perform strongly, continuing to benefit from strong institutional support at current levels.

The past week has seen the re-emergence of corporate activity, with takeover offers at the Smaller end of the Australian market with takeover offers being made for Australian Hospital Care and IAMA.

Interestingly, both companies have been chronic underperformers over the past few years, yet offer large strategic benefits to their suitors.

Further corporate activity, particularly from international companies utilising the weak $A, remains a distinct possibility.

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