Global Equity Analysis

Submitted by Jim Thesiger on 11 June, 2008 - 14:04

The Global Equity Analysis provided by Australian market analyst UBS.

Credit Spreads in the Limelight Again

The stability of international financial markets is a hot topic in current global equity analysis. And, as we approach the end of the June quarter investors will be assessing the stability of interbank markets once again. There has been an evident unsettling of interbank markets at the end of each quarter which has seen additional liquidity support from the Reserve Bank of Australia (RBA) on two occasions over the last 12 months. Conversely, should money markets remain stable throughout the end of the June quarter, Macquarie Research Equities (MRE) state that it may indicate the worst of the credit crunch is now behind us. What opportunities, therefore, will this provide for key financial stocks?

Credit Spreads

A rise in credit spreads leading into June 30 could implicate further trouble within the financial system. If however, interbank Markets remain stable then it may indicate that the worst of the credit woes are now in the past.

Analysis

Whilst interbank markets do continue to function under a degree of strain, there have been some recent marked improvements. For example, spreads between 90-Day bank bills have narrowed since their peaks in March – in part due to the liquidity injection by the RBA. The RBA funding managed to alleviate some of the pressure around exchange settlement account balances and widened the range and duration of securities utilised in open market operations.

Opportunities

Essentially, should money markets remain stable heading into June 30, central banks will be more confident that they can tackle inflation as opposed to focusing on financial system support. Perhaps, therefore, with the S&P/ASX200 Financials (XFJ) down around 34% since November, opportunities will present themselves in key banking stocks. If you are seeking geared exposure to key banking stocks, albeit with the comfort of protection, you might want to consider an MQ Listed Protected Loan. Check out the website below or call MQ Sales Support on 1800 803 010 for a PDS.

www.macquarie.com.au/lpl

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