ASX CLOSE: Defensive sectors lead market higher

Wednesday 7th April 2010

In Asia, regional markets are mixed after Federal Reserve meeting minutes overnight suggested interest rates will remain low for an extended period of time. The Hang Seng is the best performer, up 1.4% while the Nikkei is a modest 0.1% firmer. On the downside, the Kospi is weaker by 0.1% while the Shanghai Composite is down 0.3%.

In Australia, the ASX 200 closed 0.2% higher at 4960 having traded to an earlier peak of 4971. While most sectors finished in positive territory, the market appeared to be defensively positioned. It was all about consolidating the break above the previous highs of 4955.

It was certainly positive to see the market breakout above the previous high. However, the lack of volume and buying among the big cyclical stocks made the breakout far from convincing. We feel there'll be a short-term pullback before the market makes an assault on the 5000 point level.

It was interesting and a positive to note that today's gains didn't come from the usual blue-chip names. This bodes well for further rises and shows that there is broad based buying across the market.

Tomorrow will see local economic data back in focus with the latest reading on the labour market. Expectations are for continued jobs creation and the unemployment rate to continue to gravitate down towards the 5% level by year's end. This number will be a key determinant for future interest rate movements.

It was the defensive sectors that led the market higher today. Utilities were the best performer, up 1.2% while the healthcare, consumer staples and telecommunications sectors were higher by 0.4%, 0.4% and 0.3% respectively.

AGL drove gains in the utilities space, up 1.3% while among healthcare names, Sigma Pharmaceuticals continued its recent bounce back, up another 12.2%. Cochlear and Sonic Healthcare were both higher by 0.8% and 0.2%.

In the staples sector, Foster's Group was the top gainer, up 2.8% while Goodman Fielder and Coca-Cola Amatil were both stronger by 1.7% and 0.8%.

Elsewhere, the materials sector finished marginally higher, gaining 0.1% with Rio Tinto stronger by 0.3% and BHP down 0.1%. Lihir Gold ended the session firmer by 2.4% while its takeover suitor Newcrest Mining also finished 1.1% higher.

The energy sector finished relative unchanged, lower by just 0.1%, in line with the flat overnight crude price. Caltex was the standout performer, finishing stronger by 5% after having its price target increased 12 % to $14 by Macquarie, while Macarthur Coal ended down 5.2%.

Financials were modestly higher too, up 0.1% with Macquarie Group leading the way, up 2.9%. Three of the big four banks were stronger by between 0.2% and 0.4%, with CBA the best. Westpac bucked the trend, lower by 0.6%.

In a sector note from Morgan Stanley, it retained its cautious stance on the Australian bank sector, pointing to a number of factors including what it sees as revenue headwinds from subdued volume growth, funding pressures and declining fees, and regulatory uncertainty in relation to capital and liquidity requirements. In the brokers view, valuations are full. It believes a material earnings recovery and provision releases are already factored in. Its order of preference in the sector is Westpac, ANZ Bank, National Australia Bank and then Commonwealth Bank. Also, the broker views the reduced probability of a capital raising to fund the proposed AXA Asia Pacific acquisition as a positive development for NAB's share price outlook in the near term.

The coal miner this morning rejected the sweetened $3.56 billion takeover offer from Peabody Energy, saying it will press on instead with the planned takeover of Gloucester Coal and associated transactions with Noble Group. Macarthur said Peabody's revised proposal remains highly conditional and does not fully value Macarthur and its significant growth prospects. Peabody's offer was pitched at a 1.5% discount to the average broker price target for the stock of $14.21 a share and a 15.8% premium to Macarthur's closing share price of $12.09 a share ahead of Peabody's first approach. Macarthur plans to go ahead with the April 12 meeting on the proposed Gloucester deal, rather than delaying as had been a condition of the Peabody offer.

Prices are in AUD unless otherwise stated.
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