ASX Close: Market finishes up against a negative backdrop

Thursday 28th January 2010

The ASX finished up today against a backdrop of negative sentiment. In a reversal of recent fortunes it was the cyclical sectors adding the most to the gains and the defensives coming under pressure.

The ASX 200 closed 0.6% higher at 4673, just below its intra-day high of 4676.

Materials surged into the close ending higher by 1% with heavyweight miners BHP and Rio Tinto enjoying a rare (in recent sessions) up day, finishing firmer by 1% and 2.2% respectively. Fortescue Metals was another major name enjoying a change in fortunes closing higher by 2.2%.

Today's materials outperformance flies in the face of negative overnight leads. This could mark an inflection point for sentiment as market participants begin to see the recent sell-off as overdone. After eight straight falls for the materials sector, it appears investors may be seeing a near-term bottom, and are happy to add high quality names at low risk entry prices.

Still in the material space, in a technical note from Barclays Capital, London Metals Exchange copper broke sharply to the downside overnight, contrary to expectations "taking out Barclays $7,150/ton stop and forcing Barclays out of the long copper position" recommended in a recent Technical Trade note.

The broker said while prices ultimately recovered back above the $7,170 support zone to close at $7,230, the strength of the decline suggests a more choppy, prolonged correction than previously estimated. They are now focusing on the 11-month channel and 50-day average at $7,107-$7,050. Here, the larger bull trend remains intact, but bulls need a closing break of $7,511; the 3-week flag resistance to indicate that the bull trend has resumed.

Financials were another strong contributor to the day's gains finishing 1.1% higher. The sector responded positively to a late session rally by their US counterparts, which seemed happy with the Fed's FOMC statement and a reduced focus (at least for the current session) on the Obama Administration's proposed reforms to the activities of Wall Street firms.

Among the local majors, National Australia Bank and Westpac finished higher by more than 1% while the ANZ and CBA were not far behind, both ending the session firmer by 0.9%. Bendigo and Adelaide Bank was the standout performer of the session finishing higher by 5.3% after receiving an "overweight" rating by UBS.

The property trust sector was the biggest percentage gainer, rising 2.7%. A broker upgrade for Westfield Group (+4.1%) was behind the big move. In a note from JPMorgan, Westfield Group was upgraded to ‘overweight' from ‘neutral' after a tour of eight Australian malls slated for redevelopment drove a reassessment of value of the development pipeline and underpinned a 13% increase in its target price to $14.35 from $12.72. The broker said the centres were heaving, with no evidence of vacancy levels, suggesting strong opportunities to add expansion space in both near- and medium-term. This is in contrast to Westfield's US and UK malls, where expansion isn't expected until 2012.

The energy sector was another surprisingly strong performer in today's session. Weak offshore leads from major energy names and further falls in the price of crude overnight could not prevent the sector being bid higher to the tune of 0.4%. Major names Woodside and Santos ended the day higher by 1.6% and 0.5% respectively, while Oil Search closed weaker by 1.1% after flagging its 2010 production output would fall about 10% from the previous year.

In a strategy report from UBS, despite the recent spike in risk aversion, they expect further evidence of an earnings recovery to drive Australian shares higher. The broker believes market p/e's look attractive, based on the likely degree of earnings rebound over 2010 and 2011.

They maintain their ‘overweight' rating on banking and mining sectors, with upside risk to consensus estimates foreseen. In non-financial industrials, they feel earnings momentum favours cyclicals, though valuations for defensives look appealing. Hence, UBS has media as its key ‘overweight' within the industrial sector as it offers both value and earnings upside risk. They added ASX, Bendigo & Adelaide Bank, Incitec Pivot, OneSteel, Stockland to their model portfolio and removed Bluescope, Dexus and Foster's Group.

Prices are in AUD unless otherwise stated.
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