ASX CLOSE: Market closes 1.8% firmer

Monday 22nd February 2010

In Asia, regional markets have rebounded strongly following Friday afternoon's selloff as concerns ease over the surprise Fed discount rate rise. The Hang Seng is the best performer, up 2.5% while the Nikkei 225 and Kospi are higher by 2.4% and 2%, respectively. After a week-long break for their New Year celebrations, the Shanghai Composite is 0.1% lower.

Locally, the ASX 200 closed 1.8% firmer at 4717.5, on its high of the day and holding impressively above the 4700 level. Solid buying among materials, financials and energy names underpinned gains as investor sentiment continues to recover.

There was clearly some nervousness in Friday's Asian session ahead of US and European trade. Friday night's reaction to the discount rate rise was positive, which is now being reflected in strong Asian buying today.

Also, the concerns over the European debt situation are continuing to ease which is positive for global equity markets.

Technically, the fact that we're holding above the psychologically important 4700 level is encouraging. Given the close above 4700, we would expect it to act as a support level going forward.

The strong rebound in commodity prices in Friday's US session was the catalyst for the materials sector to finish the day as the session's best performer, higher by 2.5%. Heavyweight names BHP Billiton and Rio Tinto closed the day up 2.8% and 2.1% respectively, with the latter being boosted by Fitch upgrading the company's credit rating to "A-" from "BBB+" . A spike in the gold price back above US$1120oz saw Newcrest Mining and Lihir Gold firmer by 4.6% and 2.6% respectively.

In a broker note from Credit Suisse, it rates Fortescue Metals Group as ‘outperform' for its exposure to a buoyant iron ore market. CS said, while it's not without risks, and an incredibly difficult set of accounts to decipher, Fortescue is the most leveraged pure iron ore exposure in its ASX mining coverage and offers a conceptual fourfold increase in production on a longer-term view. In a separate report from Goldman Sachs JBWere, it was positive on iron ore stocks, but the lack of clarity in Fortescue's accounts, as well as its debt levels, capex, and expansion plans mean it has a ‘neutral' rating for the stock. The stock closed 2% higher.

Gains across the materials space cascaded across the energy sector which ended higher by 2.1%. Woodside closed stronger by more than 2.2% despite trading without its 54.5c dividend, Oil Search added 1% while Caltex closed up 1.1% after delivering a solid FY result.

Caltex' first-half profit met market expectations, up 9% on-year to $203 million (at the top-end of the company's guidance of $180 - $205 million). Although the profit number was higher, it compares to a year when earnings were battered by extreme currency volatility. Caltex has still been faced with tough market conditions, with lower fuel demand and increased regional refining capacity reducing regional refiner margins. Back in Australia, however, fuel demand is proving resilient with the refiner selling the same volumes of transport fuel in 2009 as 2008. However, the company didn't provide much outlook, other than to say conditions remain challenging. Investors can at least take heart that it reinstated its dividend, albeit at a relatively modest 25 cents a share.

Elsewhere, financials were one of the best performing sectors, up 1.9% as the big four banks all finished in the black. They were up between 0.3% and 2.6%, with ANZ the standout. Suncorp - Metway led the sector higher, rising 3% while Macquarie Group was stronger by 1.8%.

The consumer discretionary sector was also in focus, rising 1.8%. Gaming stocks added the bulk of the points with Crown, Aristocrat leisure and Tattersalls all finishing higher by between 3% and 4.8%. Media stocks Fairfax Media and Seven Network enjoyed mixed fortunes, up 1.8% while the latter was down 5.2% after they both reported results.

Seven Network suffered as investors digested plans to form a new group by merging the Seven Network with Chairman Kerry Stokes' WesTrac unit. While many are likely to be scratching their heads at the odd combination, its independent directors believe it is a good deal and recommend investors vote in favour of the scheme. The proposed deal will see Stokes boost his stake in the new group (to be called Seven Group) to 68%, from his current 48% interest in Seven Network.

Fairfax Media group reported a first-half profit of $148.8 million (from a $365.3 million loss a year ago), easily beating the average forecast of $132.6 million. The dividend of 1.1c was lower than the 2c a year ago and EBITDA was down 11% on year at $323.4 million. Fairfax reaffirmed earlier guidance for earnings growth in the second-half after trade for the first 6 weeks of period was up on year. Argo Investments commented it wasn't a bad result as it shows very good cost management for the period.

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