Big banks the ones to watch


Last week brought some relief for investors - the ASX 200 Index bounced strongly, creating a technical double bottom pattern at the 3860 level.

It's too early to know whether this was a classic dead cat bounce or the start of a major rally. I must admit that my job becomes a lot easier when there is some green on the screens.

This week, instead of over-analysing the Eurozone debt issues, US unemployment numbers or the China situation, I thought I'd look at a couple of events coming up in the local scene in the lead-up to Christmas - starting with the big banks.

ANZ, NAB and Westpac will hand down their profit reports in the period from late October to early November and will go ex-dividend by mid-November.

What makes the banks so interesting at this time and at these levels is their fully franked dividend yields, which stood between 6.6 per cent and 7.1 per cent at the close of business on Monday.

With the next move in interest rates expected to be down - the Reserve Bank of Australia next meets on Melbourne Cup Day - you can expect term-deposit rates to follow suit, which makes the big banks an attractive investment proposition for yield-seeking investors.

There is downside risk in the event of a full-blown European financial crisis, however, the risk of a catastrophic scenario in the short term seems to be reducing. European leaders appear to be coming to terms with the magnitude of the situation they are facing.

Sticking at the blue chip end of the market, there is an interesting scenario developing at Woodside.

There is less than a month remaining until Royal Dutch Shell's 24.27 per cent stake in Woodside is released from escrow. The 12-month share escrow period was part of an agreement last year that saw Shell sell 10 per cent of its stake in Woodside for $42.23 a share.

With Woodside trading at $35.53 a share on Monday, after briefly touching below $30 in late September, and with the Australian dollar off its highs, it is not expected that Shell will dump the stake as soon as the escrow finishes.

While the Shell stake is considered by many to be a large overhang for Woodside shares, it can also be viewed as an open invitation for a 'big oil' to secure a strategic shareholding in the company. Readers may remember Woodside shares temporarily racing above $50 a share in April this year as speculation of a BHP Billiton bid circled markets.

And a word for the wary, if you think you've been having a tough time operating in this volatile market, then spare a thought for the cotton traders at Namoi Cotton (ASX Code: NAM), the only Australian-owned cotton merchant operating in Australia.

Last week, in accordance with ASX disclosure rules, NAM was forced to confess to the market that it had significant operating losses resulting from hedging of ICE cotton futures.

Hedging of cotton futures is a complicated business and a reversal in the cotton market from a high of $US2.19/lb to a low of $US1/lb has left the traders scrambling and NAM booking a six-month operating loss of $50-$55 million.

While it was a disappointing result, NAM estimated that its net tangible asset per security at the end of August would be between 47c and 52c per share, subject to audit confirmation. This was against a closing share price of 18c/share on Monday.


_Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time. _

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