SYDNEY, Mar 19: The A$ 45 billion float of the rest of Telstra Corp Ltd is expected to transform the Australian stock market and improve its appeal to foreign fund managers.Australian Stock Exchange officials and equity analysts said they expected Telstra to make up between 12 and 14 per cent of the benchmark All Ordinaries Index once the government sells its remaining two thirds of the telecommunications group.
This compares to its current weighting of about four per cent and the 7.2 per cent weighting of the market's biggest stock at the moment, The Broken Hill Pty Co Ltd at $A 32 billion.
Analysts said the Telstra float, expected to be three to four times larger than any other in Australia's history, would reinforce the growing domination of industrial stocks on the market. Mergers and weak performances have diminished the influence of resource stocks in recent years.
"As Australia becomes more industrial-like in its markets it's actually more attractive to the majority of offshore investorsbecause they understand how they work better," said Macquarie Equities Ltd quantitative analyst Roy Shackley.
"It makes it easier for overseas investors to invest in Australia by having stocks like Telstra available," Shackley added. Daily trading volumes are also expected to jump after full privatisation of Telstra, given the float of the first third last November raised $A 14 billion.
"The Telstra float could take the weight of Telestra to over 14 per cent which means that index fund managers will have to either put cash into Telstra or have to sell other shares to buy Telstra shares," Macquarie's Shackley said.
"The implications of the Telstra float for overseas fund managers is that they will have to allocate more money to Australia and in particular to Telstra," he said.
"At the moment Telstra has a 0.4 market cap factor in the Morgan Stanley Capital International Indices (MSCI) and that would go to 1.0 when Telstra is at some stage fully listed." said Shackley.
However, BNP Equitiestelecommunications analyst Chris Savage was doubtful that the Telstra float by itself would make improve the appeal of other local shares to foreign buyers.
"The US and European fund managers are looking to invest in Asia and Australia represents a safe haven in the region, but Telstra being weighted 100 percent -- just that alone will not make the Australian market much more attractive to international investors," Savage said.
"The only thing that will really change is the MSCI index and the weighing of Telstra going up in that will force fund managers to purchase Telestra but in terms of changing their view on our market, probably not."
Prime Minister John Howard announced on Sunday the government would sell the rest of Telstra if it was returned to office in a poll expected to be held later this year.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
