All Ords Report 22/03/2011

Will the disaster in Japan mean that the Uranium industry here in Australia has missed ‘the boat’ to further capitalize on Australian government plans to open up the debate again on nuclear power? Of course there are pros and cons for both sides of the nuclear argument. However, I believe the fragile situation in Japan, which is being watched closely by all Australians, is likely to heavily tip the scales on this matter. In the next few years the movement against bringing nuclear power plants into our own backyards is likely to grow and therefore I believe it is unlikely to get off the ground.

As an indication of how Australians now see this industry, some of the notable Australian uranium miners with significant exposure like ERA and particularly PDN have been sold down heavily and are likely to remain out of favour with investors for some time. By comparison, investors will choose companies with more diverse exposure such as BHP, which is better positioned to ride out the storm. This still leaves one unanswered question, which is, if we wouldn’t have nuclear power in our own backyard how is it that we continue to dig it out of the ground to send to other nations?

What do we expect in the market?

The Australian share market slipped to a low of 4,559 points last week before it regained lost ground to close up at around 4,716 points by the week’s end. The upward momentum continued this week with the All Ordinaries Index rising higher in response to news that the UN confirmed a resolution for a ‘no fly zone’ over Libya. This decision is likely to provide some stability for global markets which had reacted to news about increasing uncertainty around oil supplies in the region over recent weeks. Given the improvement in sentiment, it is possible that the low I have been expecting for the Australian share market may now be in.

That said it is still too early to confirm this is the case as the market must rise strongly through at least 4,800 points before the probability of a sustainable rise will increase. The recent volatility simply indicates that the Australian market is continuing to trade sideways as it has done since October 2009 and therefore investors need to wait patiently for the market to make its next move. I believe that investors who stick with a plan to manage risk to protect their portfolios against the worst and hope for the best will over time benefit.

Until next time
Good luck and profitable trading

Dale Gillham
Chief Analyst