Interpac Business and Migration Solutions Melbourne Australia

(May 4, 2010)

The health of Australian stocks have risen for the first time in six years but future gains on the local market are increasingly dependent on overseas factors, a new report says.

Market researcher and fund manager Lincoln Indicators says in its latest Health Of The Market report that the number of listed companies deemed financially healthy rose in the six months to December, the first rise since 2004.

The report found one quarter of locally listed companies were rated financially strong, up from 22 per cent in the first half of 2009.

A satisfactory financial health label was given to four per cent of stocks, up from three per cent six months earlier.

The improvement was due to a rise in the overall market during the second half of 2009, plus improved earnings and profit results from many companies as the recovery from the global financial crisis got underway.

The number of financially distressed companies decreased from 16 per cent of total stocks to 12 per cent.

Lincoln chief executive Elio D'Amato said the persistently high level of unhealthy companies was mainly down to the nature of our resources-based economy.

"A large amount of companies that trade on the ASX are mining exploration firms, and as a result they don't generate any profits or any cashflow, and therefore they're just inherently exposed to higher than acceptable levels of financial risk," he said.

Lincoln were cautious on the outlook for the Australian sharemarket for the remainder of 2010, warning of the impacts of several global factors.

The concerns about sovereign debt in Greece were likely to continue to have an impact on investor sentiment, while a heavy reliance on China's boom exposes companies to the risk the bubble will burst, Mr D'Amato said.

"We expect the market to still have a positive year in 2010 but we're not naive enough to suggest that markets move in straight lines northeast or southeast," he said.

"There's obviously a number of global issues which are still weighing on our domestic bourse."

(Source from: theage.com.au)