Aussie shares seen making first annual loss in 6 years
SYDNEY (Reuters) - Australian share prices are expected to end the year in deficit, the first year of decline in six years on fears that a likely U.S. recession will drag down the rest of the world with it, a Reuters poll of analysts showed.
The share market, which is down by about a fifth already this year, is likely to languish until at least mid-year, they said, as broader financial markets grapple with the after-effects from a seizing up in credit markets.
The S&P/ASX 200 index .AXJO is forecast to end 2008 at 6,100 points, down a little less than 4 percent and registering its first yearly loss since 2002, according to the median forecast given by 14 analysts polled last week by Reuters.
That follows an 11.8 percent rise in 2007.
The latest forecast is more than 14 percent lower than the forecast of 7,125 points that strategists had predicted in the December Reuters quarterly poll.
The forecasts were taken March 10-14, before JPMorgan Chase moved to buy Bear Stearns at the weekend in a firesale, sending shockwaves through financial markets and sending many equity indexes tumbling.
"There is no such thing as a U.S. slowdown without a global slowdown," said Adnan Kucukalic, equity strategist at Credit Suisse.
"The economic environment is going to get worse until maybe July and probably from there the U.S. Fed cuts will start working. At the moment things do not look good."
While investors are looking for further interest rates cuts in the United States this week to provide a much needed boost to equity markets, analysts remained skeptical that rate cuts alone would convince banks to loosen their grip on cash.
"At this stage none of the Fed cuts have helped, have they? The reason is that the banks don't want to lend to each other. There is absolutely no funding available," Kucukalic said.
"I suppose until that situation is resolved it's going to be very very hard to see any upside to the market."
Turmoil in global credit markets, coupled with fears of a U.S. recession, have hit broader financial markets since the middle of 2007. On January 22, the Australian benchmark index slumped 7 percent in the biggest one-day slide in percentage terms since becoming the benchmark.
The Australian share index has now tumbled 26 percent since hitting a lifetime high of 6,851.5 on November 1, 2007. The index has lost 20 percent so far this year, a loss which the poll suggests is expected to almost, but not quite, be eliminated by end-year.
Most analysts say that investors are likely to continue to remain wary about the financial sector .AXFJ amid persistent credit market troubles.
"There is still a lot of sand in the gear box with regards to the financials. Banks keep hoping that the liquidity issue will ease but it doesn't," said Eric Betts, equities strategist at Nomura Australia.
Domestically-focused firms such as supermarket chain Woolworths Ltd (WOW.AX) and electrical and furniture retailer Harvey Norman Holdings Ltd (HVN.AX) are seen by some analysts as safer bets given that the Australian economy is still healthy.
But analysts have mixed views on commodity stocks.
Some say that resource firms such as miner BHP Billiton Ltd (BHP.AX) and oil and gas firm Woodside Petroleum Ltd (WPL.AX) could be pressured by worries about slowing demand if the U.S. slips into a recession.
Others argue that China's insatiable appetite for resources will continue to underpin the sector.
Australia's benchmark index trades at a forward earnings multiple of about 12, according to Reuters data, while Toronto Stock Exchange's S&P/TSX composite index .GSPTSE, a resource-heavy index like Australia, trades at about 14 times.
(Editing by Greg Mahlich)
