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Australian Equity Market a Strong Performer in 2006 - Again

The Australian market has started 2007 on a very healthy note with Australia’s benchmark S&P/ASX 200 reaching an intra-day record of 6,003.2 on 19 February 2007 before closing just shy of the 6,000 mark.

The index which has already gained almost 6 per cent this year is setting records almost on a daily basis. It is worth noting it only reached the 5,000-point mark in March 2006 and only broke the 4,000 mark in December 2004.

A record breaking finish in 2006 saw the fourth consecutive year of double digit returns. The performance of the index was well above what most analysts had expected at the beginning of 2006. The graph below illustrates nearly four years of a bull run of the S&P/ASX 200. The index run since 2003 has seen it climb 10 per cent in 2003, 23 per cent in 2004, 18 per cent in 2005, and 19 per cent in 2006.

The Four Year Bull Run of the S&P/ASX 200

Charting showing four year bull run of the S&P/ASX 200

The strong performance of the Australian market is also reflected in recent capital raising activity. In 2006 the Australian market continued to show solid support for new entrants to the market. The final quarter saw 94 new listings enter the market. This helped push the official number of ASX listings for the year to an all time high of 244 (including debt listings and additional entities listed to stapled groups).

The official number of floats in 2006 was an increase of 5% on 2005 and 21% on 2004. A total of $11.4 billion was raised by all floats during 2006 with an average and median capital raising statistics of $59 and $6 million, respectively. Small to Medium Enterprises (SME’s - defined as companies with a market capitalisation of less than $100 million) accounted for 81% of all IPOs and 11% of the total initial funds raised in 2006. In contrast, the 10 largest IPOs in 2006 accounted for 56% of funds raised at listing.

A record 156 SMEs came to the market during 2006.  The number of IPOs with a market capitalisation at listing of less than $10 million accounted for 60% of all SMEs.  IPOs during 2006 have also delivered outstanding share price performances with an average and median returns of 47% and 14% respectively as at 29 December 2006. Across the board, 76% of all IPOs were trading at or above their issue price at the end of December 2006.

2006 Floats by Market Capitalisation

Chart showing 2006 floats by market capitalisation

The market’s support for follow-on capital raisings has also been impressive.  In 2006 ASX companies raised $44.5 billion in follow-on raisings (this includes $8.7 million from the first instalment of the T3 share offer).

The buoyant capital raising environment looks set to continue into 2007 with 18 companies having listed on the ASX in January 2007 alone. Looking ahead, the IPO pipeline remains strong with over 25 companies having made an application for listing on the ASX.

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