Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Disclaimer: The Parliamentary Library does not warrant the accuracy of closed captions. These are derived automatically from the broadcaster's signal.
Lateline Business -

View in ParlView

(generated from captions) individual stories and you can

stream the entire program. For

now it's over to Lateline

Business with Ali Moore.

Thanks, Tony. Tonight - what

does an investment in Telstra

offer retail investors? The $8

billion plan to merge Suncorp

Metway with Promina and how

long can the China boom

last? It'll be fine for the

short-term future and then all

it takes is some enormous

crisis to break out or some

political crisis, maybe some

North Korean problem or a

bampging collapse and then you

could have a slowdown.--

banking collapse. Straight to the markets and Australian

shares drifted today as a

modest rise in bank stocks was

offset by falling energy

companies. Both the All

Ordinaries and the ASX200 ended

the day little changed. But in

Tokyo the Nikkei booked its

highest close in five months

the banking sector a top

performer . Hong Kong's haeng

started strongly hitting a

6.5-year high before falling

back on extensive profit-taking

and the US market, of course,

opened shortly, the future's

pointing to a cautious start.

On Friday the Dow closed just

above the 12,000 mark. London

is trading and for the latest

we cross to David Jones chief

market strategist from CMC

Capital. So far a quiet day

for the FTSE? It has been,

yeah. It's carrying on really

with a pattern we saw last

week. Half an hour ago the

FTSE was down 7. We're seeing tight ranges at the moment on

the back of not much in the way

of economic announcements

coming out. A fairly quiet six

days. A bit of a sideways

market. On the top side 6200

has stopped any rallies on the

down side 6100 on the FTSE

brings the buyers back out.

We're trapped in a sideways

range. Today the blame is

being put on the oil price.

Further slides in the price of oil and the December contract

is near contract lows it's

putting pressure on the likes

of BP and Shell which are

obviously a big part of our

index over here. That's taken

the blame for today's

weakness. Quiet across Europe,

as well? It is, it's the theme

across the board. Take a step

back and look at these markets

over the past three or four

months they're still strong and

no market moves in a straight

line forever. These markets

have been rallying strongly.

The sort of consolidation we're seeing at the moment is nothing

too negative I don't think.

It's just indicative of the

quiet time we've seen. Maybe

this is an opportunity for

people to book profits and take

a breath before the next move.

Many people are expecting that

to be higher from where we are

now. If we look at sphoks

stocks moving today, talks

surrounding Standard

Chartered? A lot. I think

today and over the weekend.

The second biggest riser today on the London market out of the

blue chips that make up the

FTSE 100. Over the weekend

there was news that the Dubai

Government may be looking to

increase its stake in Standard

Chartered and boost it to

around 20%. That's helped

things there. This morning

Standard came out with an

announcement of their own

they've acquired 51% of a

Taiwanese bank which is the

seventh largest private sector

bank in that area. Taiwan is

the fourth biggest banking

market in Asia. They're

positive about it. It's all

positive news for Standard

Chartered today, pushing shares

higher. They're on a 6-month

high. A lot of people are

looking to a move to about ?15

?16. These were all-time highs

we saw earlier in the year.

There's more room for upside. A

lot of investors love the

reaction to takeover talk. A

cautious outlook for Wall

Street? It is, yeah. I think

we're looking at a flat opening for Wall Street. It keeps

flipping between slightly ahead

and slightly down. A flat

opening and a quiet couple of

days, all eyes on the Fed on

Wednesday. Everyone is

expecting interest rates to

stay the same. It will be what

they say about the future

direction that could cause fireworks. A quiet couple of

days ahead, I think. Thank you

very much for bringing us

up-to-date, David

Jones. Cheers, then. Back

home, another milestone today

for the Telstra share sale with

small investors getting their

chance to buy in. The retail

offer will be open until #

November and already demand is

strong, both in Australia and

overseas. -- 9 November. The

Government announced today

Japanese investors have been

allocated a minimum 120 million

shares. Andrew Robertson

reports. Everyone loves a

bargain and it seems the

Federal Government has created

one with T3. People chasing

listed property trusts at 6%

unfranked yields, so it would

be quite attractive to own a

telco or a stock which has some

Government ownership at a 14%

yield franked. Demand from

retail stock brokers and

financial planners has exceeded

expectations with half the T3

shares allocated before today's

official opening of the retail

sales period. The T3 shares

are being sold in instalments

with the first instalment of $2

for retail investors coming

with a guaranteed dividend for

next year of 28 cents or 14%.

The second instalment will be

due in May 2008 and will be

largely determined by an

institutional book build with a

final T3 share price tipped to

be around $3.50 to $3.f 0.

Anton Tagliaferro is head of investments at Investors

Mutual. Given that the T3 is on

a 14% fully-franked yield.

Given that retail investors

will get in at a 10 cent discount to what institution

also pay, given if you hold the

shares you'll get a one for 25

bonus. It's a low-risk way for

investors to get into Telstra. According to Anton

Tagliaferro the turbulent times

Telstra has experienced under

Sol Trujillo's management have

added to T3's value. The Telstra share price has not

done that well in the last 18

months. It's really an

understatement. The rest of

the Australian market has gone

to record highs so Telstra

looks fairly cheap I think

compared to many things out

there. The question on many

people's minds, though, with T3

is what happens if Telstra cuts

its dividend which has been

putting a floor under its share

price? But the experts Lateline

Business spoke to believe the

dividend is not a big

issue. Even assume the dividend

is cut from 28 cents to 25

which is a 15% cut it still

puts Telstra on a 7% fully

franked yield and we can't find

many other stocks on a 7% fully

franked yield in Australia.

When you look at the credit

rating which I think is a 2,

they've got a good balance

sheet, we feel that that dividend could be

maintained. And as head of one

of Sydney's fastest-are growing

financial planning companies,

Indy Singh says retail

investors are in a different position to

institutions. Telstra is simply

just one element in the overall

scheme of long-term share

holdings, it's not the beall

and end all. However if demand

for T3 continues at its current

pace the Government may have to

have second thoughts about

increasing the allocation for

private investors. Andrew

Robertson there. From a float

to a merger and in a deal worth

$8 billion Queensland-based

banking and insurance group

Suncorp Metway plans to merge

with Promina. Firms say the

merger will make it the tenth

largest company in the ASX100.

But as Sue Lannin reports it

still has to get past the

competition regulator. The

company's sixth largest bank is

hoping to get bigger. It plans

to buy Promina in a

multi-billion pound dollar deal

. It will create a vigorous and

dynamic competitor in the

landscape. The companies say Promina's shareholders will get

$7.65 a share, a premium on the

current share price of

$6.92. We've been aware that

the possibility of possible Scholes existed. This

opportunity has been presented

to us and the Promina board has

decided it is in the best interests of shareholders to

proceed with it. It's a

reasonable deal without being a

great deal. Promina

shareholders will vote on the

plan in February. But it must

also get the approval of the

competition regulator. We understand Suncorp didn't seek

the ACCC's approval before

launching the bid. That

increases the risk the ACCC

will block it. It is a very

competitive environment and we

think that this union will provide benefits to customers

so we'll leave it for the ACCC

to apine on that. Suncorp moved

because other banks including

Westpac were eyeing a

takeover. The motivation for

the timing of this particular

deal is largely defensive on

Suncorp's part. They want to

be and they've said this in

public, they want to be on the

aggressive end of consolidation

not on the receiving end. We

don't have concerns about defending ourselves. A combined

group will have assets of $63

billion, and employs 16,000

people but there will be job

losses. Promina listed on the

Stock Exchange after being sold

by British insurer Royal Sun

Alliance in 2003. Chief

executive Mike Wilkins will

stay on for six months as a consultant. Seriously I haven't

thought beyond that 6-month consulting period. I guess

I'll take time out and think

about what to do next. If the

merger goes ahead it will be the largest marriage in the

industry since the Commonwealth

Bank bought Colonial in 2000.

Sue Lannin reporting. In

retail news today, Australia's

largest grocer Woolworths

recorded a 21% jump in sales in

the first quarter of the

financial year. Increased

revenues from the acquisition

of Foodland and Taverner pubs

contributed to the increase.

Sales were 10.7 billion for the

quarter. The company also

confirmed it expects net profit

growth of between 16 and 21%

for the year. To the economy ,

and Australian producer prices

came in above forecast for the

last quarter. Increases in the

cost of construction, power and

water contributed to a rise of

1% in the price of finished

products compared with an

expected rise of 0.8%. That's

on top of a 1.6% rise for the

June quarter. Still despite

the stronger than expected

figures one forecaster is

predicting a fall in inflation

and a surge in output. Access

Economics is tipping GDP to

grow by more than 4% in 2007 as

companies reap the rewards from

high levels of investment. But

as Neal Woolrich reports,

others aren't so optimistic.

Australia's economy is on the

verge of a new golden age according to one

forecaster. More and more

people are putting up their

hands and saying they're willing to work and because businesses are putting their

money where their mouth is and

investing in new plant, new

equipment, now mines. Access

Economics is predicting growth

of 4.6% in 2007 and a fall in

the inflation rate. Chris

Richardson says companies are

cashing in after several years of strong business investment. The average

Australian worker has never

been more profitable to his or

her employer than before.

That's why employment growth is

pretty solid at the moment, not

that so far the economy's

growing so strongly but that

profits are so good that it's

paying companies to take on

more people than before. But ANZ's Tony Pearson says

capacity constraints and a cautious Reserve Bank will stop

the economy racing ahead. So

you put those two things

together, the fact we are

running into capacity

restraints and the fact the

Reserve Bank simply can't allow

growth to get away from them,

means a growth of about 3% is

the best we can hope for over

the next two calendar

years. And the tight labour

market continues to be the main

constraint on higher growth

rates. It will be harder to

grow the labour rate without

either increased immigration or

a significant focus on

reskilling. The labour markets

are at their tightest levels in

over 30 years. In fact the

unemployment rate at 4.8%

significantly understates the

degree of pressure in our

labour markets. We've got a

lot of pent yuf demand for

labour and the shortages of

skilled labour are acute. BIS

Shrapnel says GDP growth could

hit 3.5% as a number of major

projects come on line. And if

you look more broadly now's

also a great opportunity for

investing if you look at

businesses they're facing tight

capacity yes, and a shortage of

labour but borrowing costs are

low. They're in fine shape in

terms of their balance sheets.

They've got strong

profitability, pretty much

across the board. They can

afford to invest. But that

equation could change when the

September quarter inflation

figure is released on

Wednesday. Most pundits agree

that only a surprisingly low

result will stop the Reserve

Bank from lifting interest

rates for a third time this

year. To check out local markets reacted to today's

economic news I spoke earlier

to David De Garis at

NabCapital. David De Garis

thanks for joining us. Not a

lot of movement in the end on

our market today? Very quiet

start to the week, Ali. The

market really struggled for

direction most of the day. If

we're looking at it by sector I

guess a lot of the price action

is actually in the energy

sector. We saw on Friday where

OPEC cut production quotas

further but that doesn't seem

to be enough to support oil

prices right now just in early

London trading they seem to be

off it still. We did see price

falls in Woodside and Santos

today and in a market that was

very heavy overall. Some of

the stocks that did better

today, CBA up 64 cent in a

finance sector that was pretty

flat and two of the stocks that

might benefit from lower oil

prices Qantas and Virgin Blue

they were up a few cent as

well. On the banking front, of

course, we get the start of the

profit reporting season this

week. But on the economic

front we saw third quarter

producer prices today, more

grist for the interest rate

mill? A little bit more perhaps

but I think if I was to apply any description to these

figures I'd say they were

highish. These are prices

measured at the factory level

or the wholesale level and we

know by the time they get to

the consumer there's a lot of

margin compression that goes on and competition. Producer

prices overall up 1 %. A little bit lower than the

previous quarter but higher

than expected. Consumer prices

up 1.1%. That's down quite a

bit from the previous quarter.

But still snippets of

information there that utility

prices have been going up,

construction costs have been

going up. Transport, clothing

and footwear. Perhaps a few

snippets there Ali. There's a

little bit of inflationary

pressure. But these are

limited information. Really we

will not get that situation

solved until we get the CPI

numbers on Wednesday. Snippets

today, the big one on Wednesday. We're expecting

headline inflation to come back

from 4% to 3.4%. It's that

so-called underlying rate which

was 2.9 in the June quarter is

expected to tip up to 3%.

We're probably going to need a

quarterly number of I think 0.6

or less to really keep rates on

hold. The risks at the moment

seem to be on the high side. David De Garis thank you

very much for your

time. Thanks. To the major

market movers today:

Well, when it comes to

commodities, like oil, demand

from China is a driving force

and far from slowing down,

China's economic growth is

accelerating with both JP Morgan and Deutsche Bank

raising their forecasts today

for this year's growth to

10.6%. China's economy has

expanded more than 10-fold

since free market reforms began

in 1978 creating an estimated

300,000 US dollar millionaires,

the world's biggest market for mobile phones and the second

largest car market. But this

has come at a price. China is

now the biggest exporter of

pollution. The Asia-Pacific

editor of the 'Financial Times'

newspaper told the Lowy

Institute in Sydney today this

is one Chinese export which

needs to be curbed immediately.

Victor Mallet joined me in the

studio earlier this evening.

Victor Mallet, welcome to

Lateline Business. China's

pollution has been a story for

many years. In a country where

social stability makes rapid

growth such an imperative, how

do you stop it? Um, it's very

hard to stop the pollution I

think. The Chinese people are

producing less pollution per

head than a lot of people in

the West. The problem, of

course, is that there's just so

many Chinese people. 1.3

billion people and the

government of China the communist leadership realises

this and they realise that they

can't have the same kind of

development model that people

have had in the United States

or Europe or Australia. It's

just going to be physically

impossible. There aren't

enough resources and the damage

that has already been done to

China and increasingly abroad

overseas from China is just so

great that it's not going to be sustainable. You say that and

yet aren't they starting up a

new coal-fired power station

something like one a week? Coal

is one of the very big

problems. They're burning

something like two billion

tonnes of coal a year. So does

the government care? They care

and they're starting to say we

have to do something about it.

What they're not doing yet is

really implementing the things

that they're talking about and

there's a big problem in China

which is the central government

can say all kinds of things but

when it comes to enforcing it on the ground with the provincial and the city governments they're not able to do that. Those local

governments are still obsessed

with economic growth because

that's as it were the way they've been brought up. They

were told that their success depended on it and they still

see it that way. Even though

the government is saying you have to take into account

environmental issues. At the

local level they're being told

social stability is important

and if you don't improve living

standards that's a problem.

How do you balance that with

the central government? A lot

of protests are about corrupt officials taking land. There

are a lot of protests are about

environmental issues and some

of the poorest people in China,

both in the cities and in the countryside are suffering the

most from these kind of

environmental problems - dirty

water, dirty air and so on. But you would say the central government has the commitment

to try and fix the problem? It

has the verbal commitment. I

don't think it's yet been translated into allocating

money to the problem and real

resources. The Chinese

Government has $1 trillion,

$1,000 billion of foreign

exchange reserves . They

deploy thousands of agents to

monitor emails and phone

calls. If they wanted to fix

it? I think they really could

do it. They're beginning to

realise that they need to.

That hasn't yet filtered down

to the local level to really

stop those kind of

problems. When we look at the

extraordinary growth in China

which has just been upgraded in

terms of projected growth rates

by two investment banks today,

how sustainable do you think it

is? Well, I asked this question

of somebody the other day and

they said well, it's been

sustainable for the last 25, 30

years. It's growing very fast.

The economy's still very dependent on exports to the

ultimate consumer, mostly in

the United States but also in

Europe. But there is a

domestic demand beginning to

build up in the economy and

that is encouraging in the

sense that it means that the

economy will no longer be

totally dependent on exporting

manufactured good to the United

States. So we've got

projections of 10, 10.5% growth. Do you see that

continuing for years to come? I

think the environmental issue

will be something that will

constrain that. Northern China

is desperately short of water.

So it's not - and then you've

got costs of labour are rising

very very fast, especially for

skilled workers and you've

already got some manufacturing

companies saying, "I think

we'll move to Vietnam or

Bangladesh, the costs are too

high" . An economy growing at

10% a year is doubling in size

every seven years and there's

certainly no immediate sign of

a slowdown. But if the US

economy starts to slowdown,

which some people think it's

already doing, then that will

definitely lead to some

deacceleration in China. Coming

off 10.5% growth rates are we

talking a small slowing? If you

look at the public float of

their biggest bank this week,

$22 billion US raised in

something like an hour. There

are so many people still willing to believe the China

growth story. Is a slowing

just a mild coming off? There

is definitely a bubble in parts

of the economy. It is an

astonishing - the world's

biggest floatation in Shanghai

there was something like $80

billion of retail demand. Some

of that retail demand is from financial institutions because

of the way the system works

there. Even so that's an

astonishing amount of money for

a country still essentially a

developing country. So in the

future you can see the

possibilities of a sort of

financial, another kind of

financial crisis of banking

crisis that might emerge in the

years ahead. So you'd see potential bubbles if there's a

global slowdown, a slowdown in

the economy but right now still

a boom? Right now definitely

still a boom. I think if you look at the foreign investment

banks a lot of them are saying

things like, "Well, I don't

like this bank very much, it's

got bad loan problems, but I'm going to buy it because

everybody else is going to buy

it. " Let me put my hundreds

of billions in? That's a

classic bubble mentality, it

happened with the Internet in

the West. It'll be fine for

the short-term future. All it

takes is an enormous crisis to

break out or some political

crisis, maybe some North Korean

problem or a banking collapse

and then you could have a

slowdown. But, you know, a

recession in Asia is usually

interpreted as growth of less

than 5%. It's all relative. Victor Mallet thank

you very much for your

time. Thank you.

To currency markets and the Australian dollar climbed to a

6-week high.

For a brief look at tomorrow's business diary:

A look at what's making news

in the business section of

tomorrow's papers. The 'Age'

reports Suncorp appears to have

foiled a hostile takeover bid

after releasing its merger

agreement with Promina. The

'Australian' says Telecom New

Zealand is making a further

attempt to off-load its

struggling Australian business

AAPT, opening talks with a

number of junior telcos. The

'Australian Financial Review'

looks at the union movement's

push for increases in employer

contributions to super above

the compulsory 9%, and the

'Sydney Morning Herald' claims

demand from Japanese investors

for T3 has fallen short of

expectations. That's all for

tonight. The FTSE is down 14

and the Dow has opened down 28

points. To watch any of

tonight's stories or earlier

programs, log onto the Web

address on the screen.if you'd

like to contact us, our email

address is on the screen.I'm

Ali Moore. Goodnight. Captions by Captioning and

Subtitling International.