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Why this market isn’t like 2008 – for blue chips anyway

Investors worry about a global banking crisis working its way into the big four banks. Photo: Paul Rovere Share prices in the blue chips raced up over seven years of accomodative monetary policy.

Panic. Fear. Crisis. These words have accompanied global sharemarkets’ slide into bear territory. But despite the painful falls, many blue-chip shares are still well off their 2009 lows.

High-profile investors, including George Soros, who last month said market conditions reminded him of 2008, have added to the negative sentiment.

Questions comparing now to the global financial crisis emerged at every investor meeting, Credit Suisse equity analyst Hasan Tevfik said.

Markets are yet to experience a Lehman Brothers moment that led to the market collapse in 2008, but some believe it is a matter of when not if, pointing to the impact of stretched credit in the oil and gas sector on banks, China’s economic slowdown, and global central bank policy which is moving in vastly different directions.

“At this stage the uncertainty naturally remains high,” Citi equity strategist Tony Brennan said.

“But it’s still not clear that a global recession, that the markets seem to be increasingly fearing, will transpire, or that the major central banks won’t be sensitive to the market’s concerns in coming weeks and months.”

An analysis of the share prices of the top 20 companies at the bottom of the market rout in March 2009 show while half have fallen  more than 20 per cent from ASX’s April 2015 peak, many are still trading well off their 2009 lows, reflecting a stellar run helped by seven years of accommodative central bank policy.

Commonwealth Bank of Australia, the biggest stock by market cap, was trading at $27 in March 2009, having more than halved from $60 in late 2007. By 2010, its shares had recovered its losses and, by April 2015, the share price had hit a record high of $97.

It was a similar story for Westpac Banking Corporation and ANZ Banking Group, however National Australia Bank failed to reach its pre-GFC high.

The shares are each between 20 per cent and 35 per cent down from their April high, plagued first by capital requirements from the Australian Prudential Regulatory Authority, and, more recently, the bottom line effects of tighter monetary conditions in the US and the potential for contagion from defaults in the energy credit sector.

The local energy sector is in pain now; but they were rare winners during the GFC. Origin Energy’s shares rose 50 per cent while Santos rose up 7.6 per cent in that time. But these two companies have been savaged by the oil price rout, down 70 per cent and 60 per cent respectively since April.

The commodity price falls of the past 18 months have hit local producers harder than the GFC itself. BHP Billiton shares are now trading at $16, down from $28 at the nadir, although that includes the now spun-off South 32 business.

But other blue chips are mixed. CSL shares fell just 2 per cent during the GFC, yet its share price was about $35. The blood products maker has defied this market rout, fetching $106 a share and gaining 9 per cent since April.

Woolworths and Wesfarmers had mixed fortunes. Woolworths is trading at a similar level to the bottom of the GFC, at $23, but has been plagued by company specific problems including its ill-fated Masters hardware chain.

Wesfamers shares however remain steady, down just 1 per cent since April at $43 despite losing more than 50 per cent in 2008-09 to $17.

For every doomsayer, there are others who believe the market’s pullback is necessary.

Carnegie Asset Management portfolio manager Morten Springborg said the rout reflected a “withdrawal” from the market’s addiction to stimulus, including the US zero interest rate policy which ended in December and China’s stimulus program which propped up commodity prices until 2014.

“Painful as things might be right now, global markets and economies are better off in the long run with the removal of these economic drugs,” he said.

“After a period of rehab, markets should do a better job of gauging what assets are really worth.”

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