Getting the world’s wheels back on

THE severe head colds in the US and Europe have brought bronchitis to Asia. Seven out of the eight important economies are either already in the recession ward or on their way in an ambulance.

Japan is the worse case, with industrial production down 7 per cent in June and continuing to fall. China is still on its feet, thanks to a humming domestic economy, but its exports are beginning to cough, infecting neighbouring Hong Kong.

East Asian countries are wishing they had not pinned their ears back after the 1997-1998 crisis and bet the farm on exports of computers, electronic components and other hi-tech kit. Much needed reform went on the back burner and overseas markets are drying up.

The global malaise is rolling towards Australia. We nimbly sidestepped the last Asian currency induced meltdown by exporting our socks off from the base of an expanding economy, low interest rates and a weak dollar. Could we pull off this trick again, with the rest of the world also in trouble this time?

Nobody, least of all the denizens of the financial markets, seems to know. Recently, bond sellers pushed 10-year treasury yields through 6 per cent, and assured each other that an interest rate rise was needed to head off inflation at the pass. Within four days of that move, news of a fall in employment sent traders racing to buy bonds, shouting that rates would be cut before the end of the year.

The manic depressive stock market buys “cyclical” stocks one day, as a play on 4 per cent growth in the coming year, and “defensive” shares the next as a hedge against Armageddon.

There is a newly minted belief that the US strong dollar policy has gone in the trash bin as a possible panacea for its pulverised manufacturers. Dollar bears came out of hibernation for the first time in seven years and began to claw the bloated currency. That saw the euro rise to $US91.22 cents, and the Aussie dollar clambered up to enjoy the view from a lofty 53 cents. The great and good Ian Macfarlane, governor of the Reserve Bank of Australia, said weeks ago the strength of the US dollar was: “a puzzle and a liability”. Let him worry about interest rates, that is what he is paid for.

The Australian dollar is edging up in tandem with its main trade competitors and thus not losing any competitive advantage. When the July trade figures come out they are likely to show a surplus nudging a record $A1 billion. That sort of momentum will help carry us into next year, when increased domestic demand will mean a bigger import bill. By that time, the wheels might have been put back on the world.

An embarrassing disclosure investigation

THE Australian Stock Exchange’s continuous disclosure rules oblige companies to do the dance of the seven veils to keep market watchers informed of all “material information” as it occurs.

The AMP is being investigated by the authorities for revealing too much of itself to selected analysts at a July briefing. The analysts went away and correctly predicted an earnings downgrade.

Now an embarrassed AMP has had to upgrade the downgrade, giving the impression it does not know what its profits are on a week-to-week basis – which it probably does not, given the volatility of capital markets.

The disclosure regime cannot prevent shocks. Traders took a sledge hammer to Futuris shares, driving them down from $2.60 to $1.90, when an 8 per cent profit increase to $80 million turned out to have received a boost from big asset sales. Lend Lease got a belting for reporting earnings at the bottom of its indicated range. Qantas lost altitude after disappointing with its results. Woe betide anyone who comes up short in the current environment.

There have been calls for companies to be fined for not following disclosures rules. Some want to copy the US Securities and Exchange Commission ban on private briefings given to fund managers and analysts.

That would be overkill. We could wind up with a market less informed rather than better.

Clearer regulations on what companies must and must not disclose are what is needed.

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