ASX CLOSE: Slight rise for ASX200; market still nervous

Friday 12th February 2010

Across Asia, equity markets are mostly stronger after commodity prices pushed higher overnight and fewer American's claimed for jobless benefits. The Nikkei and Shanghai Composite are the best performers, up 0.9% and 0.8%, while the Hang Seng is only 0.3% firmer. The Kospi is bucking the trend, currently weaker by 0.5%.

Locally, the ASX 200 finished 0.2% higher at 4562.1, well off morning highs of 4593.3. It was a real tug-of-war today with material and energy strength offset by selling among financial names.

The market is still very nervous and lacking confidence, despite the positive developments overnight in the Euro zone and the weaker-than-expected Chinese inflation numbers yesterday.

The ‘sell in to strength' mentality is still firmly entrenched. It looks like this is going to be the first weekly gain in four weeks, so you can easily see why traders are eager to snatch profits from the table.

It seems participants are beginning, albeit slowly to realise the results from corporate Australia and the economic data being released is very strong, especially on a relative basis.

However, this is yet to be reflected in stock prices. Yes, we're seeing solid advances here and there but overall, the market as a whole is yet to gain any real traction.

The material sector was the standout performer today, rising 1.1% and adding the most points. It was led by the big miners with Fortescue Metals Group, Rio Tinto and BHP Billiton all up between 1.2% and 3.8%, with Fortescue Metals Group the top performer.

Rio Tinto was boosted by its FY09 result, with profit about 5% above analyst forecasts and a slightly more positive outlook than rival BHP Billiton. Headline net profit was up 33% to US$4.87 billion from US$3.7 billion in 2008, when an aluminium write-down impacted the result. A more meaningful measure is underlying earnings, which fell 39% to US$6.3 billion, but came in above consensus of US$6.0 billion. Rio said its aluminium division, which has been the biggest drag on earnings, returned to profitability in 2H09. The miner also said the factors that drove the commodity price recovery in 2009 will continue through 2010, with China to grow at more than 9% and an OECD recovery to provide further support. The better-than-expected profit and outlook statements look positive.

In a note from UBS, they said the dividend was in line with expectations, cash flow was stronger than forecast leading to lower gearing and a lower net debt position than anticipated. The broker went on to say that Rio beat its own guidance for reducing controllable costs and got its gearing to a level where it can boost capital spending if warranted.

Elsewhere in the sector, Newcrest Mining (0.7%) reported its first half results this morning. Net profit was up 14.4% on year to $176.2 million, with a maiden interim dividend declared, a sign of its confidence in the outlook for the gold market. Newcrest's rival, Lihir, has just reinstated dividend payments, so Newcrest's move to pay an interim dividend may be a response to that. Underlying profit was up 10.3% on year to $266.6 million, possibly a touch below market expectations, with many analysts looking for between $270 million and $281 million. Newcrest said it is in a strong position with low gearing, a number of growth projects nearing completion and the Cadia East project on track for board approval in early April. In a note from Credit Suisse, they said 1H10 profit was solid and in line with their forecast. The broker believes the payment of Newcrest's first interim dividend is a sign of confidence in earnings, generating capability of the company and its net cash position.

Solid gains among media stocks drove the consumer discretionary (0.6%) sector higher. Ten Network, West Australian News and News Corporation rose 5.5%, 3.5% and 2.1% respectively.

The energy sector also finished in the black on the back of solid US leads. It gained 0.5% with Caltex, Santos and Origin Energy the best performers, up between 0.8% and 3.6%.

On the downside, Telstra drove the telecommunications sector further south, continuing yesterday's selling. Telstra lost another 3.1% while the sector closed 2.9% in the red.

Inflicting the most damage were financial stocks. The sector lost 0.5% as Commonwealth Bank of Australia, National Australia Bank, QBE Insurance Group and ANZ were all down between 0.7% and 1.3%, with Commonwealth Bank of Australia the biggest detractor. Westpac Banking Corporation bucked the trend, adding 1%.

In stocks specific news, Leighton Holding's (-2.6%) 1H net profit more than doubled to $288.9 million from $111.2 million a year earlier, beating analysts' expectations for earnings of $279.2 million, according to a Dow Jones poll of seven analysts. The company slightly changed the language for FY earnings outlook, saying net profit should be "in excess of" $600 million - rather than "around" $600 million", which it said late last year. It still forecast $19 billion of sales. Work in hand is only modestly up to $38.4 by the end of December, from $38.2 billion at the end of September. The group said it will have $40 billion of work in hand by June 30.

Prices are in AUD unless otherwise stated.
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