ASX CLOSE: Shares rise, healthcare sector best gainer today

Wednesday 24th March 2010

In Asia, regional markets are mixed following the strong US session overnight. The Hang Seng is the best performer up 0.4%, the Nikkei 225 and Shanghai Composite are up 0.1% and 0.2% respectively, while the Kospi is down 0.2%.

Locally, the ASX 200 was 0.3% firmer at 4891.5 today, underperforming US leads. Most of the gains came from the cyclical sectors like materials and consumer discretionary. However, we also saw strong buying interest among healthcare names, which are typically defensive, with Ansell and Sonic Healthcare the main drivers.

Despite frequent and loud calls for a pullback, markets globally continue to make fresh post-GFC highs. Whilst the ASX 200 is yet to threaten the high of 4955, today's move through the 4900 level is significant given the recent trading range.

This is very positive, especially the support we're seeing on dips. There looks to be plenty of underlying buying. Whilst most believe the market is reasonable value around current levels, it's easy to see prospective upside if the investment horizon is extended, especially given the potential for earnings upgrades and the momentum within the domestic economy.

Price action in US markets continues to paint a pretty picture, even despite the lack of convincing volumes. The fact that the market has consolidated its breakout above 1150 rather than pulling back well below it is testament to the renewed enthusiasm of investors. Is this a sign investors are chasing the market? If so, we may have further gains ahead.

The healthcare sector was the best percentage gainer today, closing 1.4% higher on the back of a 3.9% gain for Ansell and 2.2% rise for Sonic Healthcare. Perhaps strength in US healthcare names are supporting our local stocks.

The consumer discretionary sector was in a bullish mood, finishing 1.2% firmer for the session. JB HiFi led the group north, rising 3.2% on solid volumes while Fairfax Media gained 2.5%, with a number of large parcels of shares changing hands.

Despite a mixed performance from base metals overnight the materials sector posted gains of 0.7%. Talk out of Brazil that Vale was potentially seeking iron ore price hikes of up to 115% helped underpin gains in amongst the major miners with BHP Billiton and Rio Tinto closing higher by 0.7% and 2% respectively while Fortescue Metals closed firmer by 0.4%. On the downside Orica finished 0.7% weaker after announcing it would take a $63m hit to its 1H profits as a result of environmental remediation costs at two of its operating sites.

In stock specific news, BHP Billiton announced this morning that it had declared force majeure on coking coal shipments from the Hay Point terminal in Queensland. The miner said the terminal could be closed for between 3-6 weeks due to damage caused by Cyclone Ului. Hay Point, the key export port for BHP and Mitsubishi's giant coking coal joint venture, have been closed since March 11. This news will likely tighten coking coal markets. The commodity is important earner for BHP, contributing more than 25% of underlying earnings in FY09, so a lengthy closure could have some small earnings impact for the miner.

Subsequently, UBS issued a note on the coal market, saying the news will significantly tighten an already tight coking coal market. UBS believes this almost certainly means that the next quarterly price will be considerably higher than the US$200/ton negotiated for 2Q 2010.

Elsewhere, in a research note from Royal Bank of Scotland on New Hope Corporation, it believes another special dividend is likely for New Hope shareholders when the company gets its $578 million from the sale of its Arrow Energy stake. New Hope was coy yesterday on how it will spend the cash bounty, but RBS believes the estimated $439 pre-tax haul (equivalent to 53 cents/share) will likely be returned to shareholders via a special dividend. The broker continues to see "deep value" in New Hope's portfolio, with further upside linked to the Acland mine expansion and its optionality with its $1.4 billion cash balance.

Financials had another solid session, with the sector closing 0.4% firmer on the back of strong overnight leads. Bendigo Bank and Suncorp led the way, rising 1.6% and 1.2% respectively. The big four banks all finished in positive territory, up between 0.1% and 1%, with Westpac the top performer.

The telecommunications sector was the weakest performer, down 1.2%.

In a market strategy note from Macquarie Group, it said the US economic recovery is well underway, supporting a bullish US and Australian equities outlook. The broker expects the US earnings recovery will be dramatic, with calendar 2010 and 2011 EPS growth forecasts of 30% and 20% respectively, and a revisions ratio of 1.6X. It continued saying, valuations remain attractive, with the US market's p/e ratio of 13.7X below the post-tech boom average of 15X. Macquarie also notes key stocks with earnings exposure to the US recovery include cyclicals such as News Corp, James Hardie, Billabong, Incitec Pivot, Computershare and Brambles.

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