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ASX CLOSE: Market dips, but holds above 4500

IG Markets Ltd

Tuesday 9th February 2010

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In Asia, regional markets are mixed amid mounting concerns over Europe's debt situation and weakness among materials and banking stocks. The Kospi and Shanghai Composite are the best performers, up 0.9% and 0.3% while the Nikkei 225 is down 0.3%.

Locally, the ASX 200 closed 0.4% weaker at 4505.1, managing to finish above the important 4500 level with a late session rally. Following a bearish lead from US based financials, the big four banks were the biggest weight on the market. Energy names also detracted significant points.

Defensive sectors continued to outperform, an indication that bearish sentiment remains. This is unlikely to change until participants feel comfortable that the European debt concerns are under control.

We saw a real battle between the bulls and bears today, each protecting their side of the 4500 mark. However, late in the day, the bulls managed to win the war with a close above the important level.

Following bearish leads from US financials, our financial sector was the worst performer, losing 1% for the session. Macquarie Group was the biggest drag, down 6.1% following its operational update. The group said 2H profit had the potential to rise 10% from the first half. However, it hedged the forecast by saying risk factors were in place and that there's still a chance 2H profit could be the same as 1H, as previously announced. Consensus expectations incorporated a 15% rise in 2H profit, so the market was disappointed by this forecast.

Elsewhere, the big four banks were all down between 0.1% and 1.9%, with ANZ the worst performer. Westfield Group managed a gain of 0.4%.

The energy was a major decliner too, finishing the session 0.5% lower after Santos, Woodside Petroleum and Oil Search fell 1%, 0.5% and 0.4% respectively, despite a relatively flat night for Crude Oil prices.

Woodside Petroleum received some good news with all of its Browse Basin JV partners agreeing on the Government's preferred development site in WA and to work towards a final investment decision by mid-2012. This was seen as major hurdle to development, so this is a good sign for Woodside Petroleum. While the Browse Basin project has the potential to substantially benefit Woodside Petroleum's revenue (at an estimated price of around $30 billion) it could pressure its balance sheet, perhaps causing some investors concern about the need for another share issue.

Elsewhere, the consumer discretionary sector detracted points, finishing down 0.4% as Tabcorp Holdings paid a dividend of 36 cents. Crown and News Corporation were down 1.7% and 1.2% respectively.

However, the retailers outperformed, with David Jones' better-than-expected Q2 sales update and a realisation that JB HiFi's selloff yesterday was overdone spurring buyers. David Jones rose 2.8% after it upgraded profit for FY10. It expects 1H net profit will be up 10% and forecast a 5-10% on-year growth in profit for both 2H10 and FY11. Gains were impressive as the market had built in expectations for an earnings upgrade. Like-for-like 2Q sales growth of 3.1% seems robust, but expansion in both gross profit and EBIT margins from last year seem remarkable given the heavy industry discounting necessary to ensure sales growth. 

In a note from Macquarie Group, JB HiFi (1.3%) was upgraded to ‘outperform' from ‘neutral'. The broker said JB Hi-Fi has just 21% of market share, yet market leaders in Australia generally have just over 30% market share. Macquarie believes JB Hi-Fi has the brand format, store rollout profile, product offering, and business model to be the strongest performer in the sector and expects they will capture the 'dominant' market position. Elsewhere, in a report from Citigroup they upped its ratings to ‘hold' from ‘sell' and said the recent decline in JB Hi-Fi's share price had re-based earnings expectations to more realistic levels.     

On the upside, the materials sector outperformed, rising 0.3%. Lihir Gold led the way, rising 1.8% while Fortescue Metals Group and BHP Billiton were up 1.1% and 0.6% respectively.

Interestingly, in a broker report from Deutsche Bank, Virgin Blue was upgraded to ‘buy' from ‘hold', with its target price raised by 42% to 85c from 60c. This followed guidance from the company that FY10 profit before tax would be $80 to $110 million, driven by the recovery in domestic yields and the decrease in average fuel prices paid. Virgin is the broker's preferred airline exposure given its greater coverage to the domestic aviation market, having said it's "more robust than its international counterpart, with evidence indicating that international airfares remain subdued." 




Prices are in AUD unless otherwise stated.
IG Markets Ltd, Australian Financial Service Licence No. 220440. ABN 84 099 019 851.
This information is provided for information purposes and should not be regarded as financial product advice. This information does not take into account your specific objectives, financial situation or needs. Therefore you should consider the information in light of your specific objectives, situation or needs before making any trading or investment decision. IG Markets recommends you take independent financial advice before any decision whether to trade with IG Markets in the products we offer.

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