ASX CLOSE: Market gains; financial sector adds the most points

Wednesday 18th November 2009

Across Asia, equity markets are mixed this Wednesday following a relatively flat set of leads from US markets. Stronger commodity prices are boosting materials stocks and broker upgrades among technology stocks are boosting names like Sharp. The Nikkei 225 and Hang Seng are the two decliners, both lower by 0.7% while on the upside, the Kospi is adding 1% and the Shanghai Composite 0.6%.

In Australia, the ASX 200 closed up 0.2% at 4739, well off earlier highs of 4780.4. In contrast to the theme of ‘buy materials, sell financials' we've seen over the last few days, the financials sector added the most points today.

Recently, resource stocks have been boosted by strong commodity and base metal prices. The Baltic Dry Index, an index that tracks worldwide international shipping prices of various dry bulk cargoes confirms this strength. It rose to a new 2009 high yesterday, up 161 points to 4381 as demand for iron ore and coal in China boom.

This shows that the recovery in China is real. Not only are rates for the large capsize vessels hitting records, but the rates for smaller vessels are pushing higher too, indicating a broader rebound than was seen over the summer.

Asian markets, including Australia are having a tough time in following strong US leads. In the US overnight, markets closed on session highs with buyers willing to bid stocks higher into the close. However, in Australia buyers were no where near as keen as their US counterparts and were overpowered by intraday bears.

The fact that the market was unable to sustain early gains indicates a complete lack of conviction among the buyers. The market seems to be treading water at the moment, seemingly unsure of what the next catalyst is and where it might come from.

Also, concerns over the Japanese fiscal position and further large equity raisings weighed on investor sentiment.

Technically, there's a lot of resistance through the 4770 level as can be seen from the price rejections. The market hasn't been able to close above this level for a long time.

Focusing on the Australian market and the property trust sector was the biggest percentage gainer, adding 1.4%. Westfield Group, GPT Group, Stockland and Mirvac were some of the bigger gainers, rising between 1.6% and 2.7%. GPT Group was today upgraded to ‘neutral' from ‘sell' by UBS after the group closed out excessive interest rate hedges that reduces the pressure on short term earnings.

The financials sector rebounded from recent falls and added significant points, rising 0.6% for the session. QBE Insurance Group and Insurance Australia Group were the biggest risers, finishing up 2.5% and 2.3% respectively. It was reported in the Australian Financial Review this morning that QBE Insurance Group appears to be running the numbers again on a possible bid for Insurance Australia Group. The impetus for such a move sooner rather than later might be the AUD/USD strength.

Elsewhere, Suncorp-Metway and Axa were both up 1.4% while the big four banks were mixed with National Australia Bank and ANZ adding 0.4% and 1.2% and Commonwealth Bank of Australia and Westpac Banking Corporation declining 0.7% and 0.2%.

In an update on the Axa takeover situation, Axa Asia Pacific ran a presentation on its rejection of the bid from AMP and AXA SA. According to Southern Cross Equities Axa Asia Pacific basically said AXA SA needed to increase its offer for the Asia division before Axa Asia Pacific considers entering into negotiations. Southern Cross Equities said "the presentation has been tailored to respond to the AMP offer but falls short of explaining what it is Axa Asia Pacific would like - more cash or scrip (shares), and how much more? Also, it doesn't explain why the independent directors won't meet with AMP to argue their case. It appears Axa Asia Pacific prefers to negotiate through the public arena but unfortunately AMP is unlikely to increase its offer without knowing what it is that Axa Asia Pacific want".

Elsewhere, Foster's Group managed to gain 2.9%, in turn driving a 0.4% gain for the consumer staples sector.

After being significantly higher early, the materials sector only just managed to close in the black, stronger by 0.1%. Orica was the best performer, adding 3.4% while Fortescue Metals Group rose 1.7%. Australia's two biggest gold producers in Lihir Gold and Newcrest Mining continued on their merry way higher, rising 1.4% and 0.6% as the gold price moved to a fresh record high of US$1144.70 per ounce in Asian trade. BHP Billiton finished the session 0.3% higher after being up more than 2% this morning.

Interestingly, UBS upped BHP Billiton's profit forecasts after lifting its oil price assumptions. It raised its average oil price forecast to US$75 per barrel for 2010 and to US $80 for 2011 - 2013. UBS said "this resulted in 2% to 3% upgrades to net profit forecasts for BHP Billiton from FY10 to FY12. The valuation gap between BHP Billiton and Rio Tinto has closed but maintains its preference for Rio based on greater leverage to iron ore, potential turnaround of Rio's aluminium business and potential for a new takeover bid for Rio from BHP after Nov. 27". It maintains its buy rating with a $45 price target.

This is now the second EPS upgrade for BHP Billiton from a major broker. The question is when, and not if are the next ones due?

Prices are in AUD unless otherwise stated.
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