ASX CLOSE: Investors offload stock into strength; ASX200 falls

Thursday 25th February 2010

In Asia, regional markets are mixed on the back of renewed concerns over Greece and its credit ratings and despite stronger overnight leads from the US. The Kospi is down 1.5% while the Nikkei and hang Seng are both weaker by 0.9%. The Shanghai Composite is up 0.9%.

Locally, the Australia 200 CFD Index fell 1.2% to 4594.1, near the lows of the session and well off morning highs of 4689.90. The session unfolded in line with overnight leads but sentiment quickly reversed with investors offloading stock into strength. Again, most of the selling was aimed at cyclical names with the industrial, materials and energy sectors detracting the bulk of the points.

From what we can see, there's no obvious reason for the market's turnaround. Investors have to understand that sometimes there doesn't always have to be a reason behind the selling. The market can just sell-off because it wants to. It can fall under its own weight when the bids dry up.

However, there were some rumblings about Greek credit ratings and possible downgrades forthcoming. We find this amusing and bewildering; surely it was blatantly obvious that Greece was going to be the subject of more credit downgrades and face the prospect of refinancing its debt at exorbitant levels.

How this is a surprise staggers us! Surely markets have priced this in after three weeks of headline attention.

To put the Greece situation into perspective, the UK spent more on saving one of its banks than it would cost to bailout Greece. Fear often gets in the way of reality.

In economic news, Australian 4Q09 business investment rose 5.5% vs 3Q, beating market expectations of 2%. The outlook for 2010 - 2011 is also strong, with growth of 15.3% anticipated. The data confirms the robust investment outlook, largely stemming from infrastructure spending and huge projects in the mining and energy sectors. The data will remind the RBA board (which meets on Tuesday) that investments will drive the economy in 2010, possibly requiring further normalisation of interest rates.

The industrials sector was clearly the worst performer of the day finishing lower by 2.5%, in large part driven by a terrible H1 profit result from Toll Holdings, which was smashed by 17.9%. The company's H1 profit of $107m was well short of broker expectations and with guidance suggesting a similar H2 result, the obvious negative implications for the company's FY outlook saw investors running for the hills.

Downer EDI (-4.3%) also booked losses for the session of % after meeting expectations with its profit result but failing to lift its full year guidance to the magnitude that many of the analyst community had hoped for. Downer's management team has a tendency of being conservative, so the question remains, will traders look past this conservative stance and remain optimistic and upbeat on full year earnings guidance? There has been a huge improvement in their operating environment which should bode well for the company going forward, however we did see top-line disappointments in their engineering, mining and rail divisions. Their works divisions surprised to the upside.

The materials sector had a rotten day too, down 1.7% despite relatively strong leads from base metals on the London Metals Exchange.

Newcrest Mining was the biggest decliner, finishing lower by 4.7% after Gold futures fell nearly $10 to US$1091. Elsewhere, Alumina, Lihir Gold and Fortescue Metals Group were all down between 2.5% and 4.1%. Diversified miners BHP Billiton and Rio Tinto held up relatively well, only down 1.1% and 1.4%.

Energy names slumped as well despite Crude Oil prices moving back above the US$80 per barrel level overnight. Santos and Origin Energy were the main losers, closing lower by 2% and 1.8% respectively.

Origin Energy half year result easily beat market expectations, both on an underlying NPAT and revenue basis after it announced an underlying profit of $355 million. The dividend of 25c was in line with forecasts, while its reassurance of FY guidance was well received by the market. Whilst today's result should be positively reflected in the share price, further sustainable gains will be dependent on Origin's ability to secure further off-take agreement for its LNG project in an increasingly competitive supply environment. In a positive development, Origin, alongside JV partner ConocoPhillips announced a breakthrough in collaboration discussions with rival LNG proponents at Gladstone, Queensland. Origin's JV said it will sell gas to BG Group's plant. Origin has the most gas reserves out of five competing developments at Gladstone, so it should still have plenty of gas for its own plant. BG is seen by analysts as being at the head of the pack, so today's deal will strengthen its hand towards making a final investment decision by mid-2010.

Financial stocks were not spared in the day's sell off with the sector finishing lower by 0.8%. Three of the four major banks were lower between 0.3% and 1.5% while NAB, a recent underperformer, managed to post gains of 0.3%. Macquarie bank was a notable loser shedding 2.4%.

AMP lost 2.2% after the latest piece of speculation in the AMP - AXA - National Australia Bank saga surfaced in the Sydney Morning Herald this morning. The paper reported that AMP is considering a $4 billion deal which would see ANZ Bank take a 30% stake in the group in exchange for its ING wealth management arm as a fall-back option if its advances to AXA are unsuccessful. The report was met with some scepticism after an ANZ spokesman appeared to downplay the idea, saying that the group's current priorities are integrating ING and organic growth in wealth management.

Prices are in AUD unless otherwise stated.
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