ASX CLOSE: ASX finishes higher; recovers most of Friday's falls

Monday 30th November 2009

Across Asia, regional markets have rebounded strongly this Monday as the United Arab Emirates Central Bank pledged support for the country's local and foreign banks, in turn easing fears of contagion. The Hang Seng is the best performer, currently up 3.2% while the Kospi and Nikkei 225 are up 2.5% and the Shanghai Composite 2.3%.

In Australia, the ASX 200 recovered most of Friday's falls, finishing the session 2.8% higher at 4701.3, just 6 points off the session high. All sectors were firmly in the black, with the heavily weighted financials sector adding the bulk of the points.

Financials were hardest hit on Friday as investors were unsure as to the exposure Australian banks had to Dubai. Confirmation of negligible exposure alongside the backing of the UAE Central Bank has largely seen fears abate, confidence stabilise and money flows return to the sector.

At the end of last week, with the whole Dubai debt story breaking, we saw a lot of indiscriminate selling. It was a fear trade - just get out and ask questions later. With European markets rebounding on Friday, the US only down 1.5% or thereabouts, and Arab nations including the UAE central bank, moving into support Dubai World's debt, markets fears have certainly abated. What we are seeing today across Asia is equity markets realising they over-reacted and that concerns of contagion were unfounded.

We also saw this in the currency markets - the AUD and the EUR both rose nearly 2c from their Friday lows with investors realising their initial reaction (to dump risk currencies) was overdone.

Tonight's full US session will go along way to determining how we trade for the rest of the week. With liquidity and volumes dramatically increased, we'll get a much more accurate picture as to underlying investor sentiment.

Turning our attention to the market and it was an impressive rebound from Friday's falls for the ASX 200. All sectors finished firmly in the black with the financials sector contributing the most points.

The financials sector rose 4.2% for the session as all stocks rallied strongly following Friday's heavy selling, seemingly very relieved that none of the big four had material exposures to Dubai problems. National Australia Bank led the group higher, rising 6% while Macquarie Group was only just behind, jumping 5.9%. The remaining big four banks were all up between 4.4% and 4.5%, with Commonwealth Bank of Australia bringing up the rear.

The property trusts had a good session, finishing higher by 2.8% as the likes of Lend Lease, Mirvac and Stockland Group all rose between 3.3% and 5.5%.

Not surprisingly, the materials sector recovered much of last week's losses, rising 2.3% as investors began to buy riskier assets again. Fortescue Metals Group and Rio Tinto led the bounce back, up 5% and 4.5% while the likes of Orica, Amcor and BHP Billiton all rose between 2.3% and 3.4%.

Newcrest Mining was the only major resource name to finish in the red, down 0.4% for the session following gold's pullback on Friday night.

Interestingly, in a report from UBS, the broker upped Macmahon Holding's target to $0.58 from $0.55 to reflect higher earnings forecasts and valuation. Macmahon said on Friday that it expects net profit to double in FY10 to about $34 million. The broker raised its FY10 net profit forecast by 9.6% to $33.6 million, with FY11 up 9.5% to $28.7 million and FY12 up 6.9% to $39.0 million. The primary improvement in earnings is, we expect, going to come from better margins. We continue to expect Civil division margins to be at levels well above the average of the past decade. It kept its ‘neutral' recommendation.

Elsewhere, the energy sector enjoyed strong gains too, rising 2% as Caltex led the gainers, up 6.1% following a broker upgrade from Macquarie Group. Elsewhere, Paladin Energy gained 3.3% while Santos, WorleyParsons, Origin Energy and Woodside Petroleum all rose between 1.4% and 2.7%, with Santos the front runner.

In a report from Royal Bank of Scotland, the broker upgraded Oil Search, Santos and Origin Energy to ‘buy' from ‘hold' and Woodside Petroleum to ‘hold' from ‘sell' after raising its oil price estimates. Its forecast for West Texas Intermediate crude for FY09 rises to US$62 per barrel from US$60 per barrel. For FY10, it remains at US$75 per barrel, for FY11 it rises to US$82 per barrel and to US$90 per barrel for FY12 from US$69. Oil Search is its top pick with a $6.95 price target vs last traded of $5.76 with PNG LNG investment decision by Dec. 8 looking like a done deal and third train option expected to crystallise over next six to nine months.

Prices are in AUD unless otherwise stated.
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