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Bank stocks take more battering -

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Bank stocks take more battering

The World Today - Tuesday, 29 July , 2008 12:42:00

Reporter: Brendan Trembath

ELEANOR HALL: There are more worries for investors today as bank stocks take another hit on the
share market and the IMF warns there's no end in sight to the global credit crisis.

Yesterday the ANZ chief executive Mike Smith said his bank would set aside more than two billion
dollars to cover possible losses from credit markets.

And Australia's biggest banks are now taking more knocks on a shaky sharemarket, as Brendan
Trembath reports.

BRENDAN TREMBATH: Australia's top four banks were among the biggest movers on the Australian stock
market this morning.

After the first hour the Commonwealth Bank was down more than four per cent while National
Australia Bank and Westpac shed about three per cent.

Only ANZ had gained ground, but it was savaged yesterday.

Banks are widely held stocks in Australia, by investors large and small. There are fears bank
earnings and the broader economy will be battered as borrowing costs rise.

Hans Kunnen is the head of investment markets research at Colonial First State.

HANS KUNNEN: Has the worst been priced in? Many of them long-term investors and they're
superannuation-type folk and they are prepared to hang in there but a lot of the smaller investors
I think fear has overcome them and if you look at the market these days it seems to be pricing in
recession.

BRENDAN TREMBATH: Is it possible to say how severe or how long this might be?

HANS KUNNEN: Well people are asking the question is it likely to be like the early mid 70's and
that was quite protracted or shorter and sharper like the 1990's and a lot of things have changed
since the 70's in terms of interest rates and the currencies and the structure of the economy.

BRENDAN TREMBATH: Reinforcing fears is a business confidence report released by National Australia
Bank this morning.

The bank's closely watched measure of business confidence has fallen to its lowest level since
Australia was pulling out of the 1990 recession.

Hans Kunnen says in these uncertain times investment strategies are shifting.

HANS KUNNEN: Clearly with cash at eight per cent that's attracted a lot of attention, you have to
ask yourself, well in the next month, the next 12 months can I do better than eight per cent which
is where people can get in cash.

But that doesn't give you any capital growth, and whilst it's difficult to talk about capital
growth in the current days for longer-term investors that's what they're after and that's what cash
doesn't give but a lot of people have sought the safety of cash. It will have to work out in a few
years time whether that was the right decision or not.

BRENDAN TREMBATH: What do you mean by no capital growth?

HANS KUNNEN: Well if you put a $100,000 in the Bank, in five years time you'll a $100,000 plus your
eight per cent interest, whereas with the safe, dare I say shares, you get rising share prices over
time or that's what people have seen before for many years, plus the dividends.

BRENDAN TREMBATH: Hans Kunnen says while Australia's biggest banks have slumped on the stock
market, other stocks offer more hope.

HANS KUNNEN: The share market is quite a wide beast and there are sections of it that have done
better than others. The resources sector has done very well over the last 12 months, energy has
done well because of oil you know with coal and iron ore prices going up, oil prices going up
companies in those sectors have done well and you have to ask yourself well can that last?

The last few days have seen oil prices fall so there's sceptics there, but there's huge demand
still out of the emerging markets and that does suggest that the resources boom wont disappear in a
hurry, so there's a place people looking at.

ELEANOR HALL: That's Hans Kunnen from Colonial First State ending that report from Brendan
Trembath.