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This article appeared in the April 2009 Listed @ ASX newsletter.
Current market performance
Much has been written about the performance of the market in the last 18 months and the chart below showing the S&P/ASX 200 index and implied volatility says it all. Share price performance in the 12 months to March 2009 was a negative 33%, stripping $433 billion from the value of Australian listed equity. Recently, in what is perhaps a sign of hope, the S&P/ASX 200 has had one of the strongest rallies since the 1930s bouncing 20% from its 10 March intra-day low of 3120. Volatility also appears to be easing. Implied volatility (the forward volatility implied by prices in the ETO market) has softened from the very high levels seen in Q4 08, but is still high in historical terms.
S&P/ASX200 and implied volatility
Equity capital markets
Recapitalisation and de-leveraging was the major theme in 2008 and is continuing in Q1 09. The need to repair balance sheets is stimulating equity capital market activity. Australia is ranked fifth among world equity markets by new capital raised in 2008*, a ranking likely to be higher for 2009 given the world leading position held by Australia in the year to date. The relative strength of the Australian primary market highlights the important role played by our compulsory superannuation system in promoting investment capacity as well as the impact of the progressive and innovative capital raising regime in Australia.
We comment in a later article on ASX's support for ASIC's latest development in the capital raising space and note that the Australian regulator should be commended in its approach over the past decade to prospectus and rights issue reform in particular.
Australian companies have already raised $62 billion in new and subsequent equity in the financial year to date. A recent trend has been the increased use of accelerated entitlement offers and placements. Unprecedented volatility drove the need for issuers to minimise market risk and execute equity issues accordingly.
Companies are also being increasingly prudent in capital management when it comes to dividends and distributions. Many companies are retaining a higher proportion of earnings by reducing dividend payout ratios, limiting buy-back programs, and raising capital through the use of dividend reinvestment plans. In the 9 months to March 2009, ASX listed companies retained over $13 billion or approximately 30% of declared dividends, via DRPs. In FY08 the ratio was 21% of dividends paid. Companies in the financial sector retained two-thirds of their dividends via DRPs and accounted for three quarters of total activity. Similarly, securities buy-back programs have been reduced. Lower equity prices notwithstanding, the value of buy-backs in the market are down 70% on the previous corresponding period.
Equity Markets Summary
|Capitalisation 30/06/08 ($b)||1,376|
|Capital raising ($b)||62|
|Market Movement ($b)||-433|
|Capitalisation 31/03/09 ($b)||960|
* Source: World Federation of Exchanges
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