Money
Issue No. 39 - February/March 2008
Hunting share value in 2008
by David Leon
During August, markets were impacted by credit supply issues, and while these abated briefly, equity markets were again shaken by the emergence of further credit-induced volatility during December.
Much of the contraction in credit availability stemmed from the US sub-prime mortgage crisis which swept through global financial markets, with broader repercussions for equities containing significant leverage, especially that which is to be refinanced in the near term.
Perhaps the most obvious example of this impact on ASX 200 stocks was the recent performance of Centro Property Group, which went into freefall after revealing challenges it faced in refinancing a large component of its existing near-term debt.
While gearing is one component influencing a company’s performance, volatility in credit markets has certainly influenced investor sentiment in the medium term. Many are seeking to de-leverage portfolios and opting for more defensive stocks.
Looking Forward
We anticipate challenging times ahead as corporations revise their guidance due to cost increases and as profits from sales come under pressure due to crimping in consumer spending. This will squeeze many companies’ profit margins and most likely lead to more share price volatility.
Some sectors are more vulnerable than others - almost a ‘guilt by association’ factor.
In December, the real estate sector was hit when investors and lenders revisited the level of gearing they were comfortable with in the current economic environment. This led to property trusts being re-examined and perhaps somewhat oversold - in the case of Goodman Group (GMG) we have adjusted our recommendation from a Hold to a Buy.
Is there value to be found?
One should be careful not to take a broad-brush approach to investing in this market.
When the market pulls back as a whole, investors may find some value in stoc...
