ASX CLOSE: Market follows Friday's US lead south

Monday 22nd March 2010

In Asia, regional markets are mostly lower on the back of concerns that global growth will stall as economic stimulus programs are removed. The Hang Seng is the worst performer, down 1.8% while the Kospi and Shanghai Composite are weaker by 0.8% and 0.2% respectively. The Nikkei 225 is bucking the trend, up 0.8%.

Locally, the ASX 200 followed Friday's US leads south, closing 0.9% lower at 4830.2 on low volumes. Materials, financials and energy, our heaviest-weighted sectors detracted the bulk of the points.

After significant winning streaks in US markets, the re-emergence of European sovereign debt concerns and Chinese fiscal tightening, heightened by India's surprise rate hike on Friday, were enough to see investors begin profit taking.

The market looks overbought in the short - term so it's not surprising to see some profits being taken. The question is what happens going forward? While there are good arguments for equities to move in either direction, we're relatively neutral and unconcerned.

The market has been able to move past these macro concerns recently and we see no real reason why this won't be the case again. Should a pullback occur, it's likely to be well supported and shallow, particularly below 4700.

Looking at today's trade and the materials sector was the biggest decliner, finishing the session down 1.5 %. Base metal markets were lower on Friday after an unexpected interest rate hike in India sparked concerns over similar moves elsewhere, particularly China where the latest inflation data was above expectations. Markets are concerned that further tightening by China may hurt the demand for base metals.

Bluescope Steel led the big material names south, losing 2.5% while Alumina, Fortescue Metals Group, BHP Billiton and Rio Tinto were all down between 1.4% and 2.3%. Gold miners Newcrest Mining and Lihir Gold were lower by 0.8% and 1.3% thanks to a weaker gold price.

The energy and financial sector also detracted significant points, both down 0.8%. WorleyParsons topped the list of energy decliners, falling 3.2% while the likes Paladin Energy, Santos and Caltex were down between 1.2% and 1.5%.

Arrow Energy, the coal seam gas developer this morning announced it had agreed to sell just about all of its Australian operations to Royal Dutch Shell, PetroChina. It will keep its international assets and list them on the ASX through a new company called Dart Energy. Arrow was offered $4.70 a share, up from original $4.45 bid two weeks ago. Arrow said it will also hold onto $45 million cash and stakes in small Australian companies Apollo, Bow Energy and Liquefied Natural Gas. Arrow hasn't provided an estimate for the value of the international assets. Based on the share price reaction, which is down 3.6%, the new $4.70 offer falls short of what the market was expecting. Shareholders will vote on the offer in "mid-July", with regulatory approval also required.

Among financials, the big four banks all finished the session lower, down between 0.7% and 1.6%. ANZ was the underperformer. This weakness was on the back of negative US financial leads. Axa Asia Pacific managed to buck the trend, rising 0.2%. It and National Australia Bank announced this morning that they have agreed to extend by nine calendar days to March 29 a self-imposed timetable for finalising transaction documents around the $13.3 billion takeover proposal from NAB, with both parties saying talks are at an "advanced stage". AXA last traded at $6.32 and hasn't closed above the $6.43/share bid price from NAB since it went ex-dividend on March 1. So it appears the market is discounting the chances of a higher bid. Also, the March 29 deadline suggests the parties may be happy to come to some agreement ahead of regulatory clearance, with the ACCC saying it doesn't expect to decide on the bid until April 22.

Elsewhere, in a note from JPMorgan, it boosted Ten's price target to $2.09 from $1.89 after raising estimates on the back of stronger-than-expected TV ad markets and a more detailed analysis of TV costs and rebates. JPMorgan expects Ten to book 1H revenue of $478 million when it reports on March 31, with EBITDA of $107 million. The broker said it now expects FY10 TV ad revenue to have flat growth, from -6% previously. In FY11, it anticipates growth of 6.5%, down from 7.3% and said while the growth rate is lower, the absolute dollar amount is larger by 5.5% due to the increase in the FY10 base year.

On the foreign exchange front, the Aussie dollar opened the session at 0.9156, with forex traders pushing it to a session low of 0.9125. In a note from the FX desk at National Australia Bank, it said a reversal in investor risk-appetite and commodity prices were the main reasons the AUD started the new week with headwinds. It continued by saying some very good news on global growth and/or an announcement of a Greek financial bailout package is needed for the stock market to rebound to fresh highs this week.

Prices are in AUD unless otherwise stated.
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