Offshore investors see Australian stocks as attractive as valuations on financial services and mid-cap resource firms fall and as a weaker Australian dollar makes assets cheaper, Merrill Lynch's chief executive in the country said on Thursday.
"We're still seeing very good levels of offshore interest," Paul Masi told Reuters in an interview. "From a US dollar investor point of view, all of a sudden Australia's gotten cheaper."
He said this meant investors saw opportunities in areas such as mid-cap resources as well as financial services firms, which have tumbled even though Australian banks do not face the same housing and sub-prime problems hitting their US and European counterparts.
The financial services index has slumped 30 percent so far this year, worse than a 20 percent fall in the broader market, while the Australian dollar stands at around 84 US cents, near its lowest in a year against the US currency. Masi expected mergers and acquisitions to drive capital raising in Australia in the rest of this year.
"Because valuations have fallen, things are now at a value that people feel they can buy them. The private equity groups have less availability of funding so there's less competition for assets, so the traditional buyers can buy them." "Right now, for those businesses that are in reasonable shape, acquisitions would be a sensible growth strategy."
Capital raisings were also likely in the property sector, either for take-overs or to repair balance sheets. He also said debt markets overall has stabilised, but raising debt capital would remain tough for Australian companies for some time.
He expected the market for public floats to remain quiet, as the few private equity groups that have assets to sell off would be unlikely to get the valuations they want. He spoke to Reuters ahead of an annual Australian investment conference hosted by Merrill Lynch in New York on September 8-9, featuring a range of large and mid-cap companies. Merrill Lynch recently handled a A$1.7 billion share sale for CSL Ltd to help fund its take-over of rival US blood products group Talecris Biotherapeutics.