Forum Archive Index - October 2001

["Culley, Andrew" <andrew.culley@eds.com>]

Nick, we are indebted to Peter for his excellent comments on WAMs
fundamentals.   Phaedrus has also made some valuable points.

Regardless of earnings or trends, what seems to be driving the price (and
the volume) more than anything is the disposal of a large holding by
Commonwealth Bank (CBA).  In addition, SSH notices suggest that AMP is
reducing it's holding.

CBA picked up their holding through their takeover of  Colonial.   As at May
01, the CBA/Ex Colonial holding was 18% (roughly 18 m shares.).  Colonial
acquired their holding at the time of the WAM parent company sell down.
(See SSH notices which indicate that Colonial and AMP picked up their
holdings at the time of the sell down for $3.30)

The latest SSH from CBA (10 October 01)  indicates that CBA now holds 13.32%
(roughly 13m shares.) .
The question I have is, why did Colonial get into WAM so deeply?  The
holding is way too large to have been driven by any index related fund
buying (or even speculation that WAM would be included in ASX indices).  It
does not seem to have been the result of an underwriting commitment by
Colonial  (Colonial was not in that business).  It seems that this was the
(brave) decision of a particular fund manager at Colonial, who had a very
broad mandate.   I would just love to see how they explain to the unit
holders why they decided to buy nearly 1/5 of a relatively illiquid New
Zealand stock, but that is another matter
In terms of the WAM price, the real driver in the near term will be the
extent and the speed that CBA and co exit their holdings.  Looking at
volumes over the past couple of days, it appears that they are still selling
(vols of over 500k shares in the last 2 days).   If this continues, then we
are likely to see a good business at bargain basement prices.   
Why CBA would persist in trying to get rid of such a large holding in the
current market (pathetic volumes and general angst) is hard to explain but
so is their decision to get in so deeply in the first place..  My best guess
is that they may well need to fund redemptions from the unit trusts/funds.
Given the extent of the sell down though, this can only be a partial
explanation.    (Fund redemptions are nowhere near panic levels).   Perhaps
Peter's view of future earnings has been built into the CBA fund managers
model???
I am watching WAM with interest, and expect that the price will come under
significant pressure until Colonial stops or reduces its selling.   In the
circumstances, it would not be at all surprising to see some short selling
adding to the downward momentum.  I do not have much time for the "market
timing" school, but with this situation I am holding off, and am reasonably
confident that my patience will be rewarded.
That said, it is tempting to just bail in and take some short term losses in
the interests of getting into a good business - I have heard plenty of
people talk about reducing their credit card debt/mortgages (bad for banks),
I have heard many more people talk about not travelling (bad for
airlines/hotels), I have even heard people talk about deferring purchases of
big ticket items (bad for everyone ex WHS) I have not heard a single person
say "I really must put less rubbish out".  

Regards
A



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