AFI Cashed Up But Cautious
Shareholders in Australian Foundation Investment Company (AFI) were not given much in the way of optimism at the 2008 annual meeting in Melbourne yesterday, but in view of the volatile state of financial markets, the sober approach was welcome.
Chairman, Bruce Teele said in his presentation to the AGM that markets remained nervous about the flow-on effects of the US slow-down on the global economy.
"Australia has two distinct economies (resources, agriculture versus the rest), the corporate earnings outlook is subdued and there had been a "significant' change in earnings expectations, downwards.
"Some balance sheets under pressure - and there was the potential for new capital issues."
Mr Teele said that financial stocks were being hit by concerns about global financial system arising out of US sub prime problems.
And he said this was showing up in the way "deleveraging was impacting the value of financial and physical assets".
This in turn was showing up in the way investors were avoiding companies with "complex structures and/or are highly leveraged".
"AFIC has cash, but at this stage is a patient investor," Mr. Telex said. But he said trying to pick the bottom of the market is difficult.
Also confronting investors as hangovers from the 2008 financial year were higher inflation, higher interest rates && borrowing costs, awareness of risk and need to minimize that risk.
But Mr Teele said that for patient investors like AFIC, there was some upside in the shape of increased takeover activity and a positive long term outlook for resources and energy sectors.
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