ASX CLOSE: Erratic behaviour returns to markets

Friday 26th February 2010

In Asia, regional markets are mostly higher this Friday as a jump in Korean manufacturing confidence boosted optimism that Asia's growth will continue. The Hang Seng is the best performer, up 1.3% while the Nikkei and Kospi are stronger by 0.5% and 0.6% respectively. The Shanghai Composite is weaker by 0.2%.

Locally, the ASX 200 finished 1% firmer at session highs of 4637.7. There had been fears that the market would roll over on the back of Friday afternoon profit taking, as has been the theme recently. However, this was far from the truth, which was positive. Perhaps we saw a rebound from an ‘overdone' fall yesterday.

The material and financial sectors added the bulk of the points while strong gains in Woolworths drove the consumer staples sector.

ANZ's Q1 trading update is proving to be another shot in the arm for the financial sector. A significant reduction in bad debt provision is confirming a growing trend across the industry and suggests a strong earnings rebound over the remainder of 2010.

After some stabilisation in the past two weeks, it appears erratic behaviour is returning to the markets. We're seeing a tug-of-war between economic data, political concerns and company fundamentals. There's plenty of potential catalysts that could send markets lower, but few for the upside.

As mentioned above, the consumer staples sector had a strong session, up 1.9% after a big jump in Woolworth's shares. They closed 5.5% firmer after the supermarket giant's 1H net profit came in at $1.1 billion, in line with expectations. Woolworths also reiterated guidance. The group announced a share buyback that could give investors up to $400 million, which is encouraging given it comes at a time when Woolworths is investing in a JV to open a hardware chain to rival Bunnings. Woolies also increased its dividend to 53 cents, up 10.4%. Looking at EBIT, Australian supermarkets' earnings grew 11.4%, Big W's 6% and consumer electronics 20.4%. New Zealand supermarkets EBIT grew 26.9%. Goodman Fielder chimed in with gains of 1.7%.

After being heavily sold down yesterday the materials sector enjoyed a solid rebound today finishing the session higher by 1.3%. Both BHP and Rio Tinto saw gains or more than 1.6% while Newcrest Mining and Lihir Gold advanced 1.9% and 2.7% respectively after gold surged back above US$1100 in overnight trade and continued its ascent during the Asian session.

ANZ's Q1 trading update was the catalyst for the financial sector to trade higher and eventually close out the session firmer by 1.3%. A first quarter profit of $1.6b and a reduction in impairment charges saw ANZ surge 4% with the other majors not far behind, all rising between 1.4% and 3.1%.

QBE was the standout underperformer, finishing down 7% after releasing a disappointing FY profit result.

Its FY net profit rose 6% to $1.97 billion, falling slightly short of market expectations around the $2.01 billion mark. Its insurance margin fell to 17% from 19.7%, just managing to scrape in at the bottom end of the guidance range. While premiums are anticipated to grow this year by 3% in AUD terms, after a 10% rise in 2009, the market appears to be disappointed by lower growth rates and the insurance margin outlook of 16 - 18%. In a note from Macquarie Group, it said that the underwriting result quality is strong and should provide confidence in the margin outlook given that global insurance pricing and interest rates are near bottoms. The broker maintained its ‘outperform' rating and $24.95 price target.

On the downside, the industrials sector continued its poor run, losing another 0.4% thanks to further falls in Toll Holdings (-4.2%), despite an upgrade. In a note from Macquarie Group, Toll was upgraded to ‘outperform' from ‘neutral', with a price target of $8.67. The broker noted that its 1H underlying net profit of $144 million was well below the anticipated $177 million. Macquarie said it was a disappointing result mainly on account of stronger-than-expected volume declines and weak contributions from acquisitions. The broker expects the timing of the recovery to see strong improvement in FY11 EPS. Elsewhere, Asciano and Boral were down 2.2% and 1.7%.

Prices are in AUD unless otherwise stated.
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