MARKETS SPECTATOR: Offshore sell-off starts an ASX slide

Foreign fund managers have begun selling Australian bank stocks, and while some may choose the big miners, the Australian dollar's fall is exacerbating the market exodus.

Foreign fund mangers continued their sale of bank, utility and consumer discretionary stocks sending the S&P/ASX200 Index down 1.4 per cent at 1247 AEST.

The S&P/ASX200 Index was down 69.646 points to 4,992.80. It is still up 23 per cent over the last 12 months.

Traders and analysts say selling by offshore investors has accelerated this week. It has been accentuated today after the Nikkei’s 7.3 per cent plunge yesterday caused fund managers to reexamine valuations of the Australian market and some of their favorite holdings, notably the four biggest banks.

Analysts from the bullish Citigroup to the more cautious UBS agree the S&P/ASX200 Index was trading above its 20-year PE average of 14.4 times. Banks are particularly the culprits with UBS Jonathan Mott famously declaring their valuations were in “bubble” territory.

The slide in the Australia dollar – it was trading above parity to the US currency at the beginning of the month but had slid back to 96.6 against the greenback at about midday today - has further pushed foreign investors to take profits from their yield stocks.

“There’s been a large amount of offshore selling”, says Matt Sherwood, strategist at fund manager Perpetual. “There is a broad portfolio switch going on and the Australian dollar is reflecting that.”

Sherwood says foreign investors could be putting their money into other regions. Some may start selectively buying miners such as BHP Billiton and Rio Tinto who earn much of their profits in US dollars while their costs are in the Australian currency, he says.

A trader says local investors have also been spooked by a series of profit warnings, notably from mining services companies. Today Thomas & Coffey said it expects large coal miners to shut projects in Queensland’s Bowen Basin.

The outlook for Australia’s industrial sector is hardly promising, the trader says. Ford’s decision to end nine decades of car production in Australia because costs are too high, has emphasised how difficult it is to make money in the country. The trader expects a disappointing reporting season for the June financial year.

At 1229 AEST, ANZ shares were down 31 cents, or 1.1 per cent, to $27.82. The stock is up 44 per cent in the last 12 months. Commonwealth Bank had slid 88 cents, or 1.3 per cent, to $68.83. It has gained 48 per cent in the last year.  

At 1230 AEST, NAB dropped 35 cents, or 1.1 per cent, to $31.35. It has added 44 per cent in the last 12 months. Westpac had fallen 78 cents, or 2.6 per cent, to $29.14. It has risen 53 per cent in the last year. 

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