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ASX CLOSE: Financial sector gains following a strong US banking lead

IG Markets Ltd

Tuesday 23rd March 2010

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Across Asia, regional markets are mixed this Tuesday, despite the strong overnight leads from Wall St. The Hang Seng is the best performer, up 1% while the Kospi is firmer by 0.4%. On the downside, the Nikkei 225 is lower by 0.4% and the Shanghai Composite is 0.3% softer.

Locally, the ASX 200 closed 0.9% firmer at 4874.8, just off session highs of 4882. Gains were driven by our heavily weighted energy, material and financial sectors.

Bluescope Steel led the material names higher after Macquarie Group upgraded it to an ‘outperform' while ANZ and CBA fronted the financials.

Westpac's gains are more subdued after its comments that further rises in funding costs would lead to higher interest rates, irrespective of RBA moves. 

Additionally, materials stocks leveraged to continuing iron ore and coal price upgrades saw strong buying interest.

Overnight, the reaction to the passing of the health care reforms were positive and have removed a level of uncertainty from the market. While there are plenty of concerns still out there, the market remains resilient and continues to climb the ‘wall of worry', so to speak.

Everyone's calling for a pullback yet there's a level of underlying demand supporting prices, even if it is on low volumes. At the end of the day, on a medium to long-term basis, prospects for the economy and earnings are positive.               

Turning our attention to the market and the financial sector was the best percentage gainer following a strong US banking lead. It rose 1.5% with the big four banks piling on the points. They led the group higher, all up between 1.4% and 3%, with ANZ the best performer.

In a research note from Goldman Sachs JBWere, it believes it is time to sell Australian resources and switch into banks as they should outperform resources over the next few months. The broker said the market may be concerned about macroeconomic headwinds, after recent monetary policy tightening in China and India. All the good news on iron ore and coal prices is well known so buy the rumour / sell the fact reactions are likely when iron ore prices are settled. Goldman's also said that, while the economic recovery is continuing, the rate of increase is obviously slowing after a strong rebound from depressed levels.

The materials sector also had a strong day, rising 1% following a rebound in commodity prices overnight. Bluescope Steel was the biggest advancer, up more than 3.6% while Amcor, BHP Billiton, Rio Tinto and Alumina were all up between 0.9% and 1.8%.

Reports from a numbers of brokers also helped the sector. In a strategy note from Macquarie Group this morning, it kept its ‘outperform' rating on resources stocks including BHP, Rio Tinto, Alumina, OZ Minerals, Mount Gibson, OM Holdings, Minara, Independence, Western Areas, Centennial Coal, Macarthur Coal, Newcrest, Lihir, Kingsgate, Paladin, OneSteel. It upgraded Bluescope to ‘outperform'. The broker said this was on the back of a 10% increase in its long-term copper price forecast and upgraded forecasts and significant upward revisions for the iron ore and coking coal price forecast profiles.

Secondly, in a research report from Deutsche Bank on BHP Billiton, it upped its target price to $45.30 from $43.50 but kept the stock at a ‘hold' as it believes growth and returns are already factored into the price. The broker believes Rio Tinto shares still offer better near term value and that BHP Billiton needs a number of large organic projects to be initiated and executed simultaneously to significantly increase valuations, although it notes the company does have a number of quality growth options over the next decade. The key risk in Deutsche's view is in execution, particularly the company's ability to find sufficient skilled personnel to execute on the existing growth pipeline, let alone all the growth opportunities bubbling under the surface.

The energy sector managed to shrug off a weak overnight lead, finishing the session 0.9% higher. Caltex had another strong session, gaining 2.9% while WorleyParsons, Woodside Petroleum and Santos were all up between 1.2% and 1.8%.

On the downside, the defensive sectors underperformed with the telecommunications space the worst. It lost 1.2% while the healthcare sector gave up 0.5%.


Prices are in AUD unless otherwise stated.
IG Markets Ltd, Australian Financial Service Licence No. 220440. ABN 84 099 019 851.
This information is provided for information purposes and should not be regarded as financial product advice. This information does not take into account your specific objectives, financial situation or needs. Therefore you should consider the information in light of your specific objectives, situation or needs before making any trading or investment decision. IG Markets recommends you take independent financial advice before any decision whether to trade with IG Markets in the products we offer.

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