ASX CLOSE: Market finishes lower

Thursday 22nd October 2009

Across Asia, regional markets drifted south in afternoon trade after a swag of Chinese data came out broadly inline with forecasts around midday. The Nikkei 225, Shanghai Composite, Hang Seng and Kospi are all down between 0.1% and 1.5%, with Shanghai the best performer. Earlier, they were outperforming US leads.

In Australia, the ASX 200 finished 0.5% lower at 4812.8 after earlier trading as high as 4844.9. Despite weak US leads, Australia's heavy exposure to commodities ensured its relative outperformance versus US indices today as base metals were strong overnight on the back of a falling US dollar.

Prior to the much anticipated 1pm release of Chinese economic data, we saw a classic dose of ‘buy the rumour, sell the fact'. All morning, the whisper number for industrial production year-on-year growth had been 14.1% while analysts were hopeful for a ‘9-handle' on the GDP number.

When actual results came in at 13.9% and 8.9% respectively, the market response lacked enthusiasm and began to drift lower. However, we must remember that this was still well ahead of consensus forecasts of 13.3% and that GDP only just missed the ‘frequently upped' forecast of 9%.

In short, China is much stronger and growing faster than anyone would have predicted only months ago and continues its stimulus-led, v-shaped recovery.

After months of being in the driver seat, financials seem to be taking a breather and resources leading the market. Consensus among analysts is for this to continue into year end, with targets circa 5000 still very much on the radar.

Late overnight falls in the US seem to have been overdone following a knee-jerk reaction to a Wells Fargo downgrade, seemingly forgetting the stronger-than-expected result from Morgan Stanley only hours before.Turning our attention to the Australian market and it was the consumer discretionary (-1%), financials (-0.7%), energy (-0.6%) and materials (-0.5%) sectors which detracted the most points.

In the consumer discretionary space, Fairfax Media (-2.8%), Ten Network (-2.8%), Harvey Norman (-2.6%) and Aristocrat Leisure (-2.1%) were the major decliners after Network Ten missed FY 2009 market expectations.

Among financials, AMP and Axa Asia Pacific led the sector lower, declining -2.8% and -2.4%. Heavily weighted Westfield Group and Macquarie Group were also down 2.1% and 1.6% while the big four banks were mixed. National Australia Bank and ANZ finished in the red by 1.5% and 1.3% while Commonwealth Bank of Australia and Westpac Banking Corporation managed gains of 0.2% and 0.5%.

With three of the big four banks reporting next week, JPMorgan tipped that ANZ bank will book a FY cash profit of $3.173 billion next Thursday, which is slightly below the consensus forecast of $3.18 billion. The group dividend is expected to be $1.41 per share. The broker said "the main focus will be on continued Asia expansion plans in the context of its recent Royal Bank of Scotland asset purchase. Additionally, we will be looking for details regarding the deployment of capital given the current tier 1 capital ratio of 9.5%. Commentary on New Zealand will also be in focus given ANZ's overweight exposure in what remains a weak market".

Despite a stable oil price in Asian trade and a strong move higher through the $80 level overnight, energy stocks were lower today. Paladin Energy, Caltex, Oil Search and WorleyParsons were all down between 1.2% and 3.2% while Woodside Petroleum and Santos were down 0.4% and 0.6%.

After driving outperformance during the morning session, the materials sector turned south after the China data was released and eventually finished 0.5% lower. Newcrest Mining and Bluescope Steel led the decliners, slipped 1.7% and 1.8% respectively while the big miners in BHP Billiton and Rio Tinto lost 0.4% and added 0.3%, respectively.

Newcrest Mining's Q1 gold production dropped 5% on quarter to 377,084 ounces while copper output was 1% lower at 21,289 tons. However, the gold miner has not changed its guidance. Teething problems during the commissioning process at new gold mine Hidden Valley in Papua New Guinea is not to be unexpected. Royal Bank of Scotland said "most mines have some issues when they're starting up. AUD/USD strength undermining Newcrest Australian operations not a major issue, since strength in AUD usually means weak USD against a range of currencies, in turn boosting gold price in USD terms. Strength in copper prices boosting copper by-product credits".

In other resources news, the OZ Minerals board meets over the next few days to be presented with new CEO Terry Burgess' strategic plan for the miner. While details won't be released to the market until 30 November, the focus is expected to remain on Copper and Gold within Asia and Australia. Eyes will be focused on intentions for the $1 billion cash. Some of this will be needed for expansion at Prominent Hill but there still should be a considerable chunk left over for acquisitions.

Prices are in AUD unless otherwise stated.
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