Market rebounds, but more wobbles to come
Australian stocks have today bounced back from Friday’s big losses, but market watchers say there is plenty more volatility to come – and the possibility that the flow of record private equity deals here and overseas could begin to dry up.
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At 11.30am the S&P/ASX 200 has gained almost 100 points to 6033.3, up 1.6% on Friday’s 5936 close. On Friday the S&P/ASX 200 lost a massive 229.6 points or 3.72%, the biggest drop since 11 September 2001.
Today’s rebound is a response to the relatively stable US Dow Jones Index on Friday, when losses on the benchmark US index were kept to a moderate 0.23% by the Federal Reserve’s cash injection to calm global markets.
But ANZ chief economist Saul Eslake says the market instability is sure to continue, causing banks to tighten lending requirements for businesses that are highly leveraged or engage in riskier transactions – primarily, private equity investors.
Eslake says while the average business borrower won’t notice any difference, risk-averse banks may become less inclined to lend to private equity players. This could hit the value of businesses if the number of possible buyers dries up.
Pengana Capital resources fund manager Ed Prendergast says if funding for private equity is threatened, the value of businesses that have benefited from speculation about possible private equity buyers could take a hit.
“There has been some of that speculation about buyers that have led some businesses to be overvalued. If the buyers disappear we may find for some of those businesses the emperor won’t be wearing any clothes,” Prendergast says.
Despite the recent market wobbles, however, many economists believe Australia’s strong economic fundamentals will shield the economy from any significant negative impact.
“The markets are functioning normally, there is definitely no sign of a big crash or recession in the economy and really all we are seeing is normal repricing of risk,” JP Morgan chief economist Stephen Walters says.
In fact, when SmartCompany asked four market watchers where they stood on a panic scale of one to 10 (one representing normal conditions and 10 an impending economic crash), the responses were all at the safe end of the scale:
- Saul Eslake, ANZ chief economist: 3/10
- Ed Prendergast, Pengana resources fund manager: 2/10
- Stephen Walters, chief economist JP Morgan: 2/10
- Su-Lin Ong, RBC Capital senior economist: 3-4/10
No unfair dismissal exemption
Hopes have been dashed this morning that Labor was considering exempting small business from unfair dismissal.
A report on the front page of The Australian this morning says the final version of Labor’s industrial relations policy was yet to be released. It says that senior people in the party including Kevin Rudd had been testing views in the party to gauge the mood for an approach to IR that goes beyond the policy announced in April.
But Julia Gillard says not so. At a door stop this morning she says that Labor announced its policy Forward with Fairness in April. “We believe in that policy, we got the balance right. That policy is about special arrangements for small business, giving them a full 12 months to assess whether or not a worker fits into their business.
“We believe people who have proved themselves to be good workers should be able to take a claim, if they are unfairly dismissed. Of course that claim should be quickly resolved. That is in the interests of everybody, the employee involved and the employer.”
So, the journalist asked: “There are no plans to change that policy?”
“No,” she replied. “That policy was announced in April and we believe it gets the balance right.”
So that’s it folks. No unfair dismissal exemption – until the next rumour starts.
Mimco sold to Wesfarmers private equity arm, Gresham
Melbourne-based leathergoods and accessories brand Mimco has been sold to private equity for $40 million to $50 million.
Husband and wife team Amanda and David Briskin could make as much as $30 million after selling their 60% stake of Mimco to Gresham, the private equity arm of Wesfarmers.
Daniel Besen, heir to the billion-dollar Sussan retail and property fortune, and investment group Hochma, run by lawyers Mark Leibler and Michael Napthali, also stand to profit from the sale.
According to a report in The Sydney Morning Herald, Gresham is planning to expand the reach of the Mimco’s range of handbags, jewellery, beach hats and accessories by opening 10 stores a year.
The bags are already available in 17 stand-alone company owned stores, and 34 David Jones stores.
The purchase is being funded via bank debt and cash raised through investment funds.
A year ago Gresham bought women’s clothing brand Witchery for $130 million from Peter Lew; the investor looks set to combine Mimco with the 75 Witchery stores. The combined business could be floated as a specialty retail company within five years, the newspaper speculates.
Gen-Ys lack practical skills
Concerns that Gen-Ys are pouring out of universities without the practical skills needed in the workforce is causing institutions to rethink their training courses and may signal a return to the 1970s practice of industry placements.
SmartCompany pointed out in a survey recently that employers were very unhappy with Gen-Ys, with 37% complaining that Gen-Ys lacked acceptable technical skills to do their job properly.
Now some universities and institutions are making industry experience a pre requisite of undergraduate degrees.
The Australian Financial Review reports this morning that Victorian universities are leading the charge as they look to cement their position as dual-sector institutions offering both degree programs and vocational training.
Corporates such as the National Australia Bank and Deloitte Touche Tohmatsu have recognised the importance of work placement schemes as a means of training graduates to be work-ready.
The University of Western Australian has launched a new bachelor of business and commerce that includes a 13-week placement or industry case-study as part of the course. And the University of Technology, Sydney mandates that all undergraduate engineering students do two six-month placements in industry.
NAB has launched a program for students to do six or 12 month blocks of paid work experience in its financial planning and IT divisions. At last it seems, the pendulum is swinging back to getting students workplace ready!
Franchise CEO departs for retailers association
Richard Evans resigned as chief executive officer of the Franchise Council of Australia today, effective Friday 19 October. Evans, who has been CEO of the country’s largest franchise industry body since 2002, has accepted a position as executive director with Australian Retailers Association.
Australian Retailers Association, with 7500 individual members, is one of several retailers associations and doesn’t represent big retailers such as David Jones, Coles, Woolworths and Bunnings (which belong to the rival Australian National Retailers Association). Evans, who says he built FCA from an event organisation to a strong franchise industry representative association, says his skills lie in building brands and associations.
Before joining FCA, Evans was a member of Parliament and a lobbyist.
FCA chairman John O’Brien says the search to find a suitable candidate to fill the newly-created role of executive director of the FCA will begin immediately. An external agency will be appointed to manage the recruitment process.
Labor tax breaks for housing developers
Labor will promise tax breaks of up to $80,000 per dwelling to investors who are prepared to invest in low-cost rental accomodation.
Labor will today announce a plan to spend $603 million over five years to help increase Australia’s stock of low cost rental housing, according to reports today. The money will go to investors who are prepared to fund the construction of dwellings that will then be offered for rent at 20% below commercial rates.
In return, investors will receive a $6000 tax credit per dwelling built per year and at least $2000 a year in tax and other concessions from state governments.
The plan appears targeted at big investors such as superannuation funds who would seek to fund the construction of large scale housing developments.
The Housing Industry Association this morning welcomed the Labor proposal, which it says will prove an extra 50,000 dwellings with below market rent.
“Demand-side stimulus that is not countered by appropriate supply-side incentives will do little to restore housing affordability. We need measures that enhance the supply of affordable housing and from our perspective this proposal is a winner,” HIA managing director Ron Silberberg says.
R&D concessions help businesses
Businesses that receive benefits under the Federal Government’s R&D tax concession program have been able to make their R&D projects bigger and complete them faster, a new study shows.
The Department of Industry survey of businesses who receive the concession, to be released by Industry Minister Ian Macfarlane today, suggests that more than 3850 were able to complete research more quickly because of the program.
Over 60% of businesses surveyed said they were able to complete research more quickly, while up to $300 million of additional research was conducted because of the concession, according to the report.
The two key components of the concession program are a 125% deduction on R&D spending and a 175% for spending over and above a businesses average spending over three years.
“One of the biggest impacts of using the R&D tax concession is that projects proceed faster. This has important commercial implications, because speed-to-market is critical for successful new product development,” Macfarlane says.
Crane Group profits
National electrical and plumbing equipment manufacturer Crane Group has reported a full year profit for 2006/2007of $47.8 million, AAP reports today.
Although the result is down 35.3% on last year’s result, but the underlying result (net profit before significant items), was up 14.5%. The result sent Crane Group’s shares up 5.85% to $17.36 at 10.55am.
Inflation in Australia is likely to top 3% in 2007, the Reserve Bank of Australia says in its quarterly statement on monetary policy this morning.
The assessment comes in a statement that is bullish about the growth prospects for the Australian economy, the RBA saying that economic data over recent months has signalled a pick-up in the pace of growth in demand and activity.
Westpac global head of economics Bill Evans says the statement suggests the RBA may be becoming worried about inflation.
“This is a more hawkish statement than we were expecting,” Evans says. “That 3% forecast for 2007 implies the next two quarterly reads at an average 0.75% and the maintenance of that pace in the first half of 2008 as well. This is a major upward revision from the 2.5% forecast in the previous statement.”
The Australian dollar has lifted somewhat following the statement: at 12.55 pm it is worth US84.89c, up from last Friday’s US84.36c close.