Shares Finish Ahead Despite Futures Raids
Sydney Morning Herald
Friday November 26, 1999
Heavy futures-related selling spelt a rocky day for the sharemarket yesterday but strong gains in resource stocks ensured the news was not all bad.
After touching a high of 3053.7 in early morning trade, the All Ordinaries quickly nose-dived to a low of 3029 mid-afternoon before recovering to end up 9.3 points at 3044.1. Volume was also strong with SEATS lines touching a record 63.8 million following the expiry of November options contracts for several leading stocks.
On Wall Street, the Dow Jones Industrials had risen a modest 12.5 to 11,008 while the Nasdaq Composite was up 77.6 to 3420.5.
Ord Minnett associate equities director Mr Richard Coppleson said index arbitrage selling brought about by a drop in the December share price index futures injected a fair degree of volatility into the market yesterday.
``Whenever the discount to the physical market falls below three to four points, you get pretty heavy index arb selling, which causes volatility," he said.
Index arbitrage selling is where brokers sell ``baskets" of market representative stock bought in better time and buy the futures back.
The December SPI lost 5 to finish at 3038, a 6.1-point discount to the cash market.
Mr Coppleson also said volumes were expected to ``die down" leading into December, from the $1 billion a day at present to nearer $500 million.
``Activity will die down in stages, starting from the first few days in December when offshore activity will start to slow," he said. Offshore institutions accounted for 34 per cent of the Australian market, Mr Coppleson said.
``Then from about December 15 there will be another dramatic slowdown and I think the market will really be dead from that day on."
Mr Coppleson also said December 22 would be an important day because trades on that day would take until December 29 to settle, leaving minimum time before any Y2K problems became apparent.
``Because of Y2K, institutions are really cashed up at the moment and in some cases cash levels are as high as 10 per cent," he said.
If, however, January 1 came and went without a technical hitch, Mr Coppleson said January 2000 ``could be an absolute boomer".
``With no Y2K, the handcuffs will come off," he said.
Macquarie Equities associate director Ms Lucinda Chan also said the market would now start to show signs of slowing.
``The bond market is rising and investors expect another two interest rate rises in the new year," she said.
``But maybe today we'll rise because Wall Street is closed for Thanksgiving and no-one is there to guide us overnight."
Yesterday strong economic growth pointers out in the US and Europe ensured resources rallied. In the US, the second projection of third quarter GDP for 1999 was 5.5 per cent, up from 4.8 per cent, while expected GDP for 2000 in Europe was also revised upwards from 2.7 per cent to 3 per cent.
Mr Coppleson said resource stock consumption ratios a measure of how much total reported stock there is relative to metal consumption were down significantly compared to the last ``supposed commodity bull market" in 1994.
WMC was up 29c to $7.41, Rio Tinto 47c to $28.80, Boral 14c to $2.40, BHP 5c to $17.75 and Woodside 11c to $11.61.
In gold, Lihir rose 1c to $1.27, Acacia 3c to $3.01, Delta 2c to $2.64, Newcrest 10c to $5 and Normandy 3c to $1.18.
© 1999 Sydney Morning Herald