US investors sniffing out the Australian exchanges
"The Yanks" are developing an appetite for "down under" stocks and bonds. Brokers in Sydney and Melbourne say that US investors and stockbrokers have recently been looking with some fascination at Australian stocks. Although US buying hasn't been significant, the brokers here on Bond Street have high hopes that US investors will consider putting part of their international portfolios in Australian stocks.
"Foreign investors should consider putting 1 to 5 percent of their portfolio into Australian stocks regardless of timing," says Frank Mullens, chairman of the Sydney Stock Exchange. And, Merrill Lynch International, a subsidiary of Merrill Lynch, has recommended to its clients the purchase of Australian equities because of the country's participation in the developing Pacific basin, its self-sufficiency in energy, and its abundant natural resources.
Mr. Mullens, however, warns US investors that the Australian markets "can't accommodate the scale which they are used to." It doesn't take much volume to move the markets, he says, so large investors have to move slowly.
Dennis Tricks, chairman of the Melbourne Stock Exchange, agrees, adding, "US investors should come down here first to see the size of the market before they start to invest."
If investors are interested in timing their purchases, says Stuart Shelley, a partner at J. B. Were & Son, a large Melbourne broker, they will find this is a good time to buy, since the market "has sort of run into a flat spot." A combination of tight money and declining metals prices has temporarily taken some of the wind out of the Australian markets. Until the beginning of the year , the stocks markets were buoyant as investors piled into them in anticipation of the big resources boom.
Falling prices for lead, aluminum, uranium, iron ore, and gold, however, have sapped some of the local investor interest in Australian mining stocks.Companies involved with nonferrous metals account for 28 percent of the Australian market's total value, and energy and other resources account for 45 percent more of its total market value. Broken Hill Proprietary (BHP), the large steel manufacturer and mining company, alone represents 16 percent of the Australian market value.
A traditional Melbourne-Sydney rivalry extends to the stock exchanges, even though both can trade the same stocks. One broker says Melbourne likes to think of itself as more conservative, with trading in such companies as BHP dominating activity. Sydney goes for the more speculative types of stocks, such as Woodside Petroleum, a major participant in the natural gas development on the Northwest Shelf.
Investors are still attracted to some of the Australian oil and gas stocks despite the world oil glut. Trevor Jones, a New York-based representative of Rivkin Securities Inc., a Sydney brokerage house, says, "Australia is seen as a great oil and gas province, since so little of it has been explored." Recently, a small discovery of oil in the Canning Basin in Western Australia sparked a rally in oil and gas stocks because the discovery was thought to have major significance for the country.
The Australian markets have been bit by the same merger bug that has created a lot of excitement in the United States. Most recently, the merger activity has centered on the big banks, especially with the combination of the Bank of New South Wales and the Commonwealth Bank of Australia. Other mergers among some of the Melbourne heavyweights have also spiced things up.
"The merger mania," notes Bruce Teele, the senior partner at J. B. Were, "has occurred here because some companies have wanted access to better cash flow, while others, such as the mining companies, have been merging as a defense against possible takeovers." Mr. Jones adds that companies in the manufacturing and service sector have merged to broaden their capital base and so get a bigger piece of the resources boom. Still other mergers, quips Mr. Mullens of the Sydney exchange, have resulted from Australian-size "ego trips."
Some of those ego trips could be in for a jolt soon. As of July 1, the Australians have a new securities watchdog commission, called the National Companies and Securities Commission. The NCSC is unusual for Australia in that it can cross state borders in administering takeover activity and company affairs.In most cases in Australia, state authority holds sway over federal jurisdiction.
An early goal of the commission, indicates its chairman, Leigh Masel, is to limit insider trading in securities. Insiders are those either directly or indirectly involved with an acquisition.
The NCSC will base its operations on five principles. These include: (1) The acquisition of shares should take place in an efficient, informed, and competitive marketplace; (2) the identity of a major bidder for shares should be known; (3) shareholders should have a reasonable time to consider an offer; (4) shareholders should have adequate information to assess an offer; (5) all shareholders should have an equal opportunity to participate in an offer.
Next January a new companies code is expected to be passed, and this is expected to give the NCSC even wider powers, possibly including the ability to effect accounting changes.
Australian observers point out that under the current laws, the NCSC can hold a public hearing on practically anything it wants. The stock exchanges will continue their policy of self-enforcement, and the various state corporate affairs commissioners will likewise continue to exert some influence.
The Australians realized they needed an agency comparable to the US Securities and Exchange Commission after the Poseidon boom of the mid-1960s. Speculation in mining issues reached its peak when investors shot the price of Poseidon Mines from 20 cents a share to $200 a share in a matter of weeks. Later, it was determined that samples from the mine had been tampered with and the price of the stock collapsed, dragging down most of the mining issues. Investors were mauled and a respected brokerage house went under.
In the United States, the Federal Reserve Board seemed to relent some last week on its monetary restraint, and investors cautiously returned to the stock market. The nibbling reduced the Dow Jones industrial average loss for the week to 3.52 points. The average closed at 955.6. The main activity centered on merger candidates, including Conoco. Cities Service, and Texasgulf.