It was unfortunate timing to say the least: big fund manager, Perpetual took the opportunity to update investors on where it saw the market placed at the moment, and where it was heading.
And it did so on a day when the market tanked in the worst sell off for several months.
So Perpetual’s view that the worst of the falls in the stockmarket were over, but that the All Ordinaries index is likely to track sideways for some time to come, was undermined by the reality of what was happening on market.
Perpetual’s share price tracked downwards, pretty smartly. It fell more than the market, dropping 5.3% or more than $1.50 to $27.89.
Our market was down 3% or 120 points after Wall Street and European markets tumbled off the back of a seemingly bog standard update from the World Bank.
The trigger happy reaction actually supported the notion that the rally since March had been overdone and there were some easy profits waiting for the speedy seller. Australia missed the boat Monday afternoon, Wall Street and Europe validated selling with their falls
So Perpetual’s cautiously optimistic view of the immediate future looked out of place, but its warning a weak global economic recovery going forward didn’t, because that’s ostensibly what the reaction to the World Bank’s growth downgrade was all about.
Perpetual’s main fund managers, led by John Sevior, head of Australian Equities, said that the market had "passed the point of maximum risk" and that a two-stage recovery now appeared to be underway.
The world economy would stabilise for the rest of this year after the shocks of 2008 and then show signs of growth into 2010.
"It appears we have passed the point of maximum risk; bank capital ratios have risen. A two stage recovery; – economic trough and financial system stabilisation (2009) global and Australian earnings recovery (late 2009/10).
But risks remain such as declining earnings, dividend cuts, deleveraging and high government debt, Mr Sevoir said.
Mr Sevior said in his presentation there were a number of reasons to be reason to be cautious going forward
"The price rise has been stronger than normal; global and Australian economies to sustain sub-trend growth; de-leveraging is a multi-year process; households, banks, governments and some corporates Financial year 2010 earnings remain optimistic; lower returns; lower revenue growth and sustained cost pressures; increased focus on dividend sustainability.
"The key risks are balance sheets, earnings and valuations; flight to quality’ will continue and management of downside risks will be critical; earnings and dividend fundamentals and balance sheet strength."
Mr Sevior also pointed out that dividends were still too high relative to cash.
He said dividends need to decline by another 60% to equal cash.
But so far the rebound since March had only been bettered by the recovery in shares on four other occasions since then, in particular the bounces of 1931, 1975 and 1991, the last of which gave rise to the 16 years of economic growth in Australia that ended in late 2007 when the market hit 6800.
Perpetual is expected to report a lower profit in the range of $60 million and $70 million for June 30, 2009 financial year.
The company warned in late May that earnings this year would be lower than its most recent forecast.
