Kreston market update week ending Friday 28th June 2010

Kreston ANZ

Insights

News

Kreston Dormers

Kreston Dormers Financial Services Pty Ltd

Australian markets recovered a large part of last week’s 8% falls with the ASX 200 up 5.6%.

The market fell to 4,374 at one stage on Wednesday before staging a 2%+ rally on Thursday and is showing support on each of the dips below 4,400. Credit spreads (the cost of insuring against default) for Southern European countries remain elevated which in turn is making share markets nervous. In the absence of a major X event, as stated previously, we expect the market to range trade between 4,100 and 4,800 (give or take 100 points) over the next few months.

	Friday	Week	%
All Ordinaries	4,464	-11	-0.2
S&P / ASX 200	4,440	-15	-0.3
Property Index	873	20	2.3
Utilities Index	4,138	106	2.6
Financials Index	4,401	-43	-1.0
Materials Index	11,518	-194	-1.7
Energy Index	14,689	159	1.1

There was no movement in term deposit rates this week..

Term	Rate %	Change in rate
3 months	5.50	-0.50
6 months	6.00	0.00
12 months	6.11	-0.09
3 Years	6.80	0.00
5 years	6.95	0.00

Overseas markets were mixed with Asia showing the strongest growth. The US S&P 500 fell -0.1% while the FTSE rose 0.3%. Markets in Asia were positive with Hong Kong’s Hang Seng 1.9% stronger and Japan’s Nikkei up 1.2%.

In Australia, GDP grew by 0.5% for the March quarter and company acquisitions are topical. Overseas, China’s economy is showing signs of slowing due to the government pulling back stimulus measures. US manufacturing remains robust and important jobs data is to be released Friday night.

In this week’s feature section we explain the various types of Powers of Attorney.

Australian News

The Resources Super Profits Tax (‘RSPT”) debate continued with the Chinese now criticizing the tax. Hardly an objective source of advice, but nevertheless it shows that this tax is not just a domestic issue between the miners and the government. It is also a significant matter for our major export markets as well as overseas investors. The miners dialed up the heat as Xstrata announced they were suspending 2 significant mining projects in Queensland due to the uncertainty created by the tax.

In previous Updates I stated that a profit based tax is conceptually reasonable. However the size, timing and elements of the tax, such as the retrospectivity and rebates for mining losses present the tax as a significant negative.

It is interesting that the Prime Minster has stated that he does not expect the tax to be finalized before the election. Reading between the lines this may well be a recognition that the tax needs ‘watering down’ but due to political issues it will be done after the election.

Australia’s Quarterly GDP growth for the March quarter was 0.5% with 2.7% for the full year ending March 31. Of this growth, 0.7% came from government spending and the economy is at an inflexion point where the private sector (particularly from exporters) is expected to start taking over government spending as the growth driver.

Engineering company Downer EDI (DOW) announced a $261 million provision relating to cost overruns on a contract with the NSW government. Apart from trashing confidence in management it also raises the prospect of DOW requiring a capital raising to fund growth.

Crane hirer Boom Logistics (BOL) received a conditional cash takeover offer at $0.52 per share which equates to their Net Tangible Assets. The BOL Board is considering the offer.

NAB continues its acquisition negotiations with AXA who extended the exclusivity period for negotiations to July. NAB is trying to negotiate sale of the AXA’s investment platform as the competition regulator, the ACCC, rejected the proposal on the grounds that NAB’s ownership of the platform would be anti-competitive.

Overseas News

In a sign that the acceleration of China’s economy is slowing, the Purchasing Manager’s Index which measures the rate of purchases for inputs into manufacturing, slowed from 55.7 in April to 53.9 in May. A reading above 50 indicates activity is increasing. This is not necessarily bad news for China as the government has been attempting to dampen activity due to inflation concerns.

Japan’s factory output rose 1.3% in April which was less than expected. This would undoubtedly reflect China’s efforts to slow their economy as much of the Asian economic growth has been underpinned by China’s expansion.

Manufacturing in the US however is showing no signs of slowing with a manufacturing survey in the US reading a very robust 59.7 in May. Non-farm payrolls data is due out Friday in the US and this will be very important to the near term direction of markets.

Early in the week, markets fell on ratings agency Fitch downgrading Spain’s credit rating from AAA to AA+. This was not unexpected given Spain’s debt position.

From an overall global economic perspective we are at an important point where government stimulus packages are beginning to fade and pressure from credit markets is causing European economies to cut government expenditure. The question is whether economies can show sustainable growth while bringing government fiscal balances onto a reasonable footing, at the same time as keeping deflation or inflation at reasonable levels. Those are topics we might cover in future updates.

Feature Section : Enduring Power of Attorney

This week we describe the different types of Powers of Attorney.

Do you need a Power of Attorney?

Generally, we consider that having a Power of Attorney and/or a Medical Power of Attorney is as important as having a properly drawn up will, particularly for older clients or those in poor health.

Because many of the issues surrounding Powers of Attorney are legally based and specific to individual circumstances we recommend that you consult with your solicitor or Estate Planning specialist.

Governing Regulations

The Instruments Act 1958 of Victoria provides for three types of powers of attorney: general; medical treatment; and guardianship. In WA the laws governing Powers of Attorney fall under the Guardianship and Administration Act 1990, in NSW the Powers of Attorney Act 1993 and in Qld the Powers of Attorney Act 1998.

Not all states have the three (3) Powers of Attorney types described below (and can have different names) so advice on Powers of Attorney may need to be taken in the state of residence.

Types of Powers of Attorney i. General

A Power of Attorney is a document under which a person (the donor) gives to another person (the donee) the power to act on their behalf in specified legal/financial decisions and management (i.e. to stand in their shoes). The effect of a power of attorney is that all acts committed by the donee within the power held by them have the same legal effect as if the donor had committed them.

An enduring power of attorney can be used by the donor even if the donor subsequently loses legal capacity.

Legal capacity is a term used to describe a person’s ability to be aware of, and understand fully, the nature and implications of their actions. A donor must have legal capacity at the time of signing the power of attorney for it to be valid. Should any doubt arise about the donor’s legal capacity to enter into a power of attorney a documented medical opinion should be obtained.

Without an enduring power of attorney, it is likely that the State Authorities will appoint a financial administrator. The administrator appointed might be the State Trustees or some other person that makes application to the authorities. The person appointed will act in the same way as an appointed attorney. However, that person will be required to report at regular intervals, and justify any actions taken to the State authorities.

In Victoria, the ACT and Queensland it is also possible to establish a medical enduring power of attorney, which empowers the donor’s legal capacity.

ii Medical Treatment

An Enduring Power of Attorney (Medical Treatment) (also known as a “living Will”) is available in Victoria, the ACT, and Queensland and allows another person to make decisions about medical treatment upon loss of the donor’s legal capacity.

For example, you may be involved in an accident and be unconscious upon arrival at hospital. Complications may arise if surgery requiring your consent is required. An attorney appointed under an Enduring Power of Attorney (Medical Treatment) is empowered to consent to any required surgery.

An Enduring Power of Attorney (Medical Treatment) complements an Enduring Power of Attorney in that it passes control of your medical affairs to someone you consider appropriate to make decisions on your behalf.

Anyone who has sufficient legal capacity may be appointed. It is important to note that your attorney is required to act on your behalf in a way that is in your best interests.

iii Guardianship

An enduring power of guardianship grants permission to a representative to make personal and lifestyle decisions, such as choices surrounding accommodation and/or health care. The powers conferred can be unrestricted or limitations can be imposed.

If you give your guardian the power to make healthcare decisions, they can agree to medical treatment but cannot refuse medical treatment. If you have also appointed someone with enduring power of attorney (medical treatment), they will take precedence over your guardian for all medical decisions.

Note a guardian cannot consent to the following medical procedures:

• those likely to lead to infertility
• your involvement on medical research
• termination of pregnancy
• removal of tissue for transplant

Benefit

• Empowers a trusted person to
   - take control over your financial affairs, should the need arise
   - make personal and lifestyle decisions in the event of loss of legal capacity
   - authorize medical treatment in the event of loss of legal capacity

Authorised Witnesses to Power of Attorney

One of the two (2) witnesses must be a person authorized to witness the signing of a statutory declaration eg Lawyer, police force member, doctor, dentist, pharmacist or bank manager.

For Medical Powers of Attorney and where there may be some doubt as to the Donors state of mind it is advised a Doctor familiar with him or her be one of the witnesses.