ASX CLOSE: Market higher on choppy trading; light volumes

Wednesday 25th November 2009

In Asia, regional equity markets are mixed in late trade this Wednesday following weaker leads from overnight trade, with traders seemingly packing up shop ahead of tomorrow's Thanksgiving Day holiday. Both the Nikkei and Shanghai Composite are up 0.3% while the Kospi is flat and the Hang Seng down 0.2%.

In Australia, the ASX 200 was 0.8% higher at 4722.2 in choppy trade on light volumes. There was really no main theme at play locally, but we saw some rotation towards more defensive sectors like healthcare and telecommunications stocks.

While we expected the heavily weighted financials and materials to detract points, further selling of banks following the Lloyds capital raising did not materialise, nor did weaker overnight metals prices drag on the materials sector. We did however see some stock specific selling pressure in Rio Tinto following speculation that Chinalco is looking to offload part or its entire stake in the miner.

With the market appearing exhausted following a tough year, we're not seeing the normal pre-Thanksgiving cheer or buying optimism that has seen this week historically outperform. In the US, market participants are basically packing up shop after tonight's session, with other markets following suit as the rest of the trading week promises to be pretty bland for global equities.

In local economic news, the total value of construction work carried out in Australia rose 2.2% in Q3 from Q2 versus market expectations of a flat result. The strong building and engineering construction data is likely to be supportive of stronger Q3 numbers, in turn supporting the case for further rate hikes.

Focusing on the market, and it was some of the defensive sectors fronting the leader board. The telecommunications sector rose 2% while the healthcare space added 1.2% with Cochlear rising 4.8% following a broker note from JPMorgan.

In a report issued by the broker, Cochlear's target price was raised to $58.04 from $56.90. Baha BP100 and Nucleus 5 ear implants will underpin FY10 growth, and forecasts respective unit growth of 14% and 20%. It expects new products to underpin sales growth in next 2 years, but also sees a change in competitive landscape as a risk to long-term market share. Sonova's purchase of Advanced Bionics may create a stronger long-term rival and Cochlear is likely to face competition for Baha from Oticon Medical and Sonitus Medical. Advanced Bionics' recall of some products is a minor positive and may help Cochlear maintain some market share. It keeps its recommendation at ‘neutral'.

Despite weaker overnight commodity prices we saw materials enjoy a solid day, finishing 1.1% higher and strengthening into the close. Broker talk about BHP's relative strength compared to its peer group helped it climb 2.3% while Rio Tinto shares fell 0.3% in part due to speculation that major investor Chinalco may be looking to quit its 14% stake in the company. Elsewhere in the resource space, Riversdale Mining was higher by 11.7% after it announced Brazilian Steel player CSN would acquire a 16.3% stake in the company at $6.10 while Aquila Resources finished higher by 4.8% following its recent tie-up with Baosteel.

Interestingly, in a report from Southern Cross Equities they indicated Rio Tinto has zero chance of receiving a fresh bid from BHP Billiton when UK Takeover Panel standstill rules expires on Friday. BHP Billiton no longer needs the rest of Rio Tinto as they are extracting maximum synergies via Pilbara JV. Why outlay $100 billion when you can outlay $3 billion and get the vast bulk of the synergies that would have been delivered by the full takeover. Also, BHP Billiton would not want Rio Tinto's aluminium assets, which give heavy exposure to the US economy.

Also, in a report from Goldman Sachs JBWere they believe the weakening US dollar and the development of the US dollar carry trade courtesy of record-low interest rates are acting as key factors influencing the flow of investment funds into commodities this year. Gold is the traditional beneficiary of such flows, but it is clear that other metals have also enjoyed the updraught of the current cycle. It adds that the fundamentals for base metals are weak, even for its preferred pick of copper. Our concern is that, with the restocking in China having run its course for now, the copper surplus will become more visible through rising LME stocks over the next three to four months. However, we're not clear if this will result in a price correction, as it will depend largely on behaviour of financial markets.

The financials sector also added points, finishing the session up 1%. QBE Insurance Group was the standout performer, rising 2.8% while Suncorp - Metway added 2.5%. Among the big banks, Westpac Banking Corporation, ANZ and National Australia Bank all finished in the black, up between 1.4% and 1.8% while Commonwealth Bank of Australia was the laggard, down 0.3%.

On the downside, the industrials sector was the biggest decliner, losing 0.8% with Connect East and United Group finishing weaker by 4.8% and 3% respectively.

Prices are in AUD unless otherwise stated.
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