Time To Weigh Up The Conflicting Advice On T3
Sun Herald
Sunday November 5, 2006
Treasurer's gloomy view of the commodity cycle is not shared by resource analysts at the coalface.
THANK goodness October is behind us. I get nervous every year because I'm old enough to know that it is the month when the sharemarket is most likely to suffer a dose of the wobbles.The 1929 and 1987 crashes and half of the 10 biggest drops on Wall Street have been in October. But not this year. The Dow gained 40 points, or 3.4 per cent, and broke through the 12,000 barrier for the first time.The Australian sharemarket hasn't been left behind, with the ASX 200 and the All Ordinaries indices closing at record highs as the commodities boom continues to fuel the share prices of major mining companies and even Telstra's price has kicked up since the launch of T3.So does that mean T3 is worth a look and should we follow Treasurer Peter Costello's advice and dump our mining shares now at the top of the market?This week is decision time on T3, with the deadline on Thursday. I must admit there are so many mixed messages being pushed by different interested parties that it's hard to get a handle on what's happening.In the space of a couple of days I read that the T3 offer was being snapped up by high-net-wealth individuals attracted by the strong dividend yield. Then one newspaper reported how institutional investors were avoiding the issue while another newspaper reported on how instos were keen on the stock.Even at the grassroots level I have mates who are putting in orders with one broker and being encouraged to take more while at another broker they're being told the same order is likely to be cut in half.Go figure.More than ever it's a case of getting individual independent advice matched to your particular circumstances before making a decision.On the surface, Telstra shares touching $4 last week tends to indicate there is a bit of momentum and support for the stock. But there has been no new information to change the fundamentals of the company since T3 was announced.You need to weigh up:* Whether the final price provides value. Remember that the final price will be set after assessing offers from institutional investors and you won't know that price until after committing.* The attractiveness of the dividend yield and whether it will be maintained.* The likely chance of success of the changes undertaken by the relatively new management team brought in by Sol Trujillo.* The potential of T3 against other investment alternatives across the sharemarket and property.Certainly over the past year resource stocks have been a better alternative than Telstra shares. As China's economy continues to boom, with growth rates of 9 to 11 per cent a year, its insatiable thirst for commodities to feed its factories has pushed mineral prices to record levels.Australia has been beautifully placed to become China's quarry and local miners have been able to chalk up record profits on the back of their biggest customer.Some of those commodity prices have plateaued recently and a couple have eased back, but certainly nothing dramatic.That's why Costello's dire "commodities boom is over" prediction was more than a little puzzling.So, should we take the Treasurer's advice and sell now? Is he ringing the bell at the top of the commodity cycle?A quick ring around resource analysts provides a different commodities scenario from the one Costello is offering.Almost to a person the resource gurus say they cannot foresee any major downturn in commodity prices in the near future. They say China's economy is expected to grow at the current pace (or only slightly lower) for at least the next couple of years.This growth should underpin commodity prices. While they don't expect any major jump in commodity prices, they certainly don't expect any major fall. It will be steady as she goes at around current levels.The only downside is expected to be our competitiveness as a supplier to China. A number of the experts commented about our miners being stymied by the infrastructure bottleneck which means many simply can't get enough product to China to meet demand.Rather than any potential price downturn, if anything it's the Treasurer and the Federal Government who are being a major impediment to our commodities boom.Many have been left wondering whether the Treasurer's comments were more directed to the Reserve Bank to paint a gloomy future and therefore stop what seems to be an inevitable increase in official interest rates this week.But I somehow think the Reserve Bank board is a little smarter than that.
© 2006 Sun Herald