Stocks rise as investors weather storm

TOP stock watchers say the sharemarket's recovery since early March is a sign that long-term investors are at last returning to the table,

ASX board /File

Stocks rise as investors weather storm

TOP stock watchers say the sharemarket's recovery since early March is a sign that long-term investors are at last returning to the table, encouraged by increased scrutiny of market manipulation and an expectation that the domestic economy will be insulated from any US downturn.

The Australian stock market, having just endured its biggest quarterly fall since the 1987 crash, has rallied more than 500 points in the past fortnight. Yesterday the benchmark S&P/ASX 200 index rose 106 points, or 1.9 per cent, to 5608.9, defying Wall Street's fears of a US recession.

Ray Schoer, a company director and former head of both the Australian Stock Exchange and the corporate regulator, said the strong rise in the share market over the past two days indicated fresh money was being poured into equities.

"It looks to me as though there's more upside than downside left in the market now, although I think we'll have volatility for some months yet,'' he said.

Industry Funds Management chairman Gary Weaven, who helps manage $14 billion in funds, said he expected a "much saner and better market''  this year now that companies relying on cheap credit and expectations of rising asset values had been shaken out of the market.

"With the levels of gearing that were around, it was clear that some of the players were only adding value through financial engineering, getting all of their upside return on assets out of the differential between interest rates and anticipated growth rates,'' he said.

Perpetual head of Australian equities John Sevior said the fall in the stock market meant
shares were no longer overpriced.

"It's the best value that's been in the market for four or five years - there's a whole raft of things that look well-priced that weren't there eight or nine months ago,'' he said.

Companies such as the Centro property group have been hit hard by the credit crunch caused by the collapse of the US sub-prime mortgage market. Others, such as ABC Learning Centres, were attacked by hedge funds and short-sellers at the height of the market skittishness in January and February.

The big Australian banks led the $400 billion collapse in the stock market since the middle of last year as investors fretted about their exposure to troubled companies and the effects of the credit squeeze on their own balance sheets.

But there are now signs of renewed confidence that the Australian banks and other well-managed companies had been too heavily sold and will weather the turmoil, even if the US sinks into recession.

Mr Weaven said while the threat of a US recession continued to cloud the local outlook, Australia would be to a large extent shielded by China's continued demand for our mineral exports.

Mr Schoer praised the media for its role in protecting investors' interests amid the collapse of financial institutions.

"Their disbelief at the behaviour of some participants in the market has been a salutory lesson, and perhaps all those trades that were cancelled last Friday is an indication of thesensitivity of a lot of people to what the media is saying,'' he said.

Troubled broking group Tricom attempted to sell $38 million of shares it held with Opes Prime last week after it discovered Opes had been placed into receivership but the transactions were later cancelled when it became apparent they could not be settled. Tricom was later exposed as the seller despite earlier denials.

However, Mr Schoer said the regulator needed to do more to prevent market manipulation by "cowboys who believe they can drive a market down for their own benefit''.

However, Henry Bosch, former chairman of the National Companies and Securities Commission, said it was premature to call an end to the bear market and that another Opes-like failure was possible.

"It would be wrong to suggest that confidence has returned completely. Markets in my experience almost always over-react in both directions,'' he said.

"You have to expect a considerable amount of irrationality. We've seen that, and we'll see more of it, but I'd be pleasantly surprised if we didn't see a few more sharp falls before sanity takes over.''