ASX CLOSE: Widespread buying buoys market

Wednesday 17th February 2010

Regional markets are very strong across Asia, with the Nikkei the standout performer. It is higher by 2.5%, while the Hang Seng and Kospi are up 1.7% and 1.6% respectively. Overnight leads were very good as stocks rose firmly, rallying right into the closing bell as improved earnings at Barclays, better-than-expected growth in New York manufacturing and a pickup in commodities boosted overall sentiment.

Locally, the ASX 200 finished 2.2% higher at 4667.9, only a few points from the highs of the day. It was the biggest daily gain since November 30 2009. The buying was widespread, although it was the financial and materials names adding the bulk of points.

The market closed only five points of its intraday peak, a stark contrast to the profit taking we've seen in recent weeks. It was extremely positive to see the market close near session highs as it suggests a change in investor psyche and a growing confidence in the sustainability of further gains. This was evident in US markets overnight, with all three major indices closing near their peaks.

With macro fears continuing to ease, we may be seeing the re-emergence of economic data and company fundamentals as the major driver of investment decision making.

It appears participants are finally coming to grips with recent concerns dogging the market and beginning to take note of the stronger-than-expected earnings season, both locally and abroad.

Continuation of this theme is paramount in sustaining investor confidence.

In economic news, the Westpac Leading Index posted stellar annualised growth of 6.2% in December, sending strong signals that a robust economic recovery is underway in Australia. In an accompanying report from Westpac, they said the rebound was dramatic given the indicator had hit a cyclical contraction low of 6.9% in May 2009. The rebound is the fastest reversal since the economy bounced out of recession in the mid 1970s.

Turning our attention to the market and it was the financial sector which led the march higher. It was up 2.5%, continuing to benefit from Westpac's result yesterday as well as strong overnight leads. ANZ was the standout, up 4.6% while the remainder of the big four banks were all up between 2.8% and 3.5%.

Axa Asia Pacific rose 0.5% after it reported a FY net profit of $679.2 million, in line with guidance given last month. Operating earnings fell a fraction to $553.6 million from $555.6 million a year earlier. But CEO Andrew Penn said he's pleased with the result given difficult market conditions since the GFC - the group performed particularly well in 2H, with operating earnings up 17% on 1H due to strong sales growth. He went on to say that AXA had navigated its way through the global financial crisis successfully and 2010 is about accelerating its growth.

The industrials space added significant points too, thanks largely to a massive turnaround in Brambles. The sector rose 2.6% for the session, with Brambles the standout, up 5.9%.

Brambles result initially disappointed the market. However, supportive comments from CEO Tom Gorman breathed life back into the stock. He said "there's ample headroom to fund further growth and market conditions have definitely stabilised, although he stopped short of saying demand recovery had begun".

Asciano, Macquarie Airports and Toll Holdings were all up between 3.4% and 3.8%.

Healthcare had a big day, with the sector rising 2.6% thanks to strong reports from CSL and Ansell. They rose 5.1% and 7.8% respectively. CSL smashed even the most optimistic of analysts' expectations with 1H10 profit coming in at $617 million, well above the expected range of $509 - $547 million. Impressively, this included a $46 million unfavourable foreign exchange charge. This is another stellar result from one of Australia's best managed companies. For example, compared against the same period in 2005, EPS has grown by a staggering 230%. Given the stock has traded in a tight range over the last 6 months, the sharply better-than-expected result and bullish outlook may be the catalyst needed for the price to gravitate toward broker targets in the upper thirty dollar range.

Ansell also gained on the back of its 1H result and FY guidance upgrade. The group said it now expects FY10 EPS of 69-74 US cents a share, compared to 56-62 US cents previously, boosted by a deferred tax adjustment equating to 6 US cents. The interim dividend of 13 cents a share also surprised some analysts who were expecting a steady payment of 12 cents. The company is pleased by its sales, which in US dollar terms were flat at US$533.3 million and well up on the result recorded in 2H09.

Elsewhere, there was strong gains across the materials space. The sector finished 2.4% higher thanks to gains of more than 3% for Lihir Gold, Rio Tinto, Bluescope Steel, Newcrest Mining and Alumina. Alumina was the best performer, up 7.1%.

Other companies to report today included Westfield Group and Coca-Cola Amatil. Westfield Group fell 1.4% after the group surprised the market, reporting a full-year net loss of $457.8 million. However, operational earnings came in as expected at $2.06 billion, up 6.2% on year. The net loss was again due to property revaluations of $3.5 billion, principally in the first-half. The second-half was much better, with the company saying it had a profit of $250 million. With its new distribution payout policy, Westfield expects dividends to be 64 cents for 2010, down from 94 cents for 2009. The group is upbeat on Sydney City and Stratford UK projects, which it says are more than 50% leased or committed. It also said the group's portfolio was 97.2% leased at December 31, the highest since September 2008. Australian business stayed strong through 2009 and more importantly, the US, UK and New Zealand businesses stabilised in the second-half.

Coca-Cola Amatil also fell, down 2.5% after FY net profit rose 16% to $449.0 million from $385.6 million, exceeding internal forecasts and meeting analysts' already high expectations. CCL said it should deliver high-single-digit earnings growth in the current half. The firm also reported growth in Australian beverages (which was expected), a recovery in New Zealand, and a 20% pick-up in earnings from its food division. However, there seems to be some concern about the loss of CFO Ken McKenzie, who is retiring after 25 years. Nessa O'Sullivan, current CFO of operations will become the group CFO as of September 1.

Prices are in AUD unless otherwise stated.
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