ASX CLOSE: Market pushes higher at day end

Thursday 18th March 2010

Across Asia, regional markets are mixed after a strong set of overnight leads. The Hang Seng and Shanghai Composite are up 0.2% while in Japan, the Nikkei 225 is 0.8% lower. The Kospi is down 0.4%.

Despite stronger overnight leads, the ASX 200 oscillated either side of the flat line for the majority of the session before deciding to push higher late. It closed 0.2% firmer at 4863.1, off morning highs of 4872. In direct contrast to US gains, the Australian market was defensively postured with the property trusts, telecommunication and utilities sectors among the best percentage performers.

Whilst the market has been rallying in recent days, volumes have been far from convincing, suggesting there's not the weight of money to push the market much higher. Having said that, there are a lot of participants calling for a pullback due to the recent strength.

They all want to get set. History would suggest however, that when this is the case, the exact opposite usually occurs, driven by frustrated buyers who failed to get cash into the market.

Technically, markets globally look strong. A number of them have already broken out to fresh post-GFC highs. Something will have to change if Australia is not to follow the offshore lead.

The typically defensive sectors were the best percentage gainers today with property trusts adding 1.6%, telecommunications 1.1% and utilities 0.5%.

Westfield Group drove the gains in the property trust sector, rising 2.2% while Stockland and GPT Group also added 2.4% and 1.8%. Telstra boosted the telecommunications sector with a gain of 1.3%.

The financial sector contributed significant points late, closing the session 0.4% firmer. Bendigo Bank was the standout performer, up while the big four banks were mixed with both ANZ and Commonwealth rising 1.1% and 0.8% respectively. National Australia Bank and Westpac Banking Corporation lost 0.3% and 0.2% respectively.

The energy sector chipped in too, managing gains of 0.3% following strong overseas leads. Woodside Petroleum was the biggest contributor, finishing 1% higher for the day.

After seeing weakness for much of the session the materials sector rallied over the last hour of trade to eventually finish higher by 0.2%.The sector's advance came despite BHP Billiton ending down 0.3% and Fortescue Metals retreating 0.8%. Among the other major names, Rio Tinto managed to finish higher by 0.4% while Lihir Gold continued its strong recent run to post gains of 1.3%.

Interestingly, in a strategy report from JPMorgan, it is happy to remain underweight resources given that it's hard to see a resolution around the uncertainty surrounding China. The broker notes that nervousness about China's exit strategy from economic stimulus has meant that mining stocks have been treading water through large upgrades to commodity and earnings forecasts. It believes the current themes argue for China stepping back from the investment-intensive growth of 2008-2009. JPMorgan said the stimulus is crowding out manufacturing through competition for labour and is adding to inflationary pressures. It is straining public finances and creating a supply bulge in real estate, which at best will take time to digest and at worst could cause prices to correct. However, the broker notes that conclusive evidence of a soft landing, even if it comes, is surely a long way off. Even then, investors should question what the next phase of China's development looks like for resources.

In other materials news, OZ Minerals (-1.7%) this morning announced it had posted its maiden inferred gold resource at its Okvau exploration project in Cambodia of 605,000 ounces. In a comment from JP Morgan, it said the resource delivers on what the company had promised but there's still a lot of work to do to prove up the 2 million plus resource needed to underpin a mine development. OZ believes the first round of results is encouraging. It's now embarking on a fresh round of drilling as it aims to prove the potential to reach that 2 million ounce mark.

On the downside, selling among industrial and healthcare names detracted. The industrial sector lost 0.4% thanks to falls of 1.9% and 1.7% at Leighton Holdings and Downer EDI. CSL & Sonic Healthcare dragged the healthcare space south, both falling 1.3%.

Still in the healthcare space and things at Sigma Pharmaceuticals looks dire. Its shares remain suspended but are likely to get battered when the stock returns to trade. Sigma announced that it expects to scrap its 2H dividend on the back of heavy write downs sparked by reduced cash flow, increased financing, redundancy costs and inventory write downs. The firm also said loan covenants are under pressure, although it is negotiating adjustments with banks that are "both positive and constructive". Although non-cash items are largely responsible for the pressure, investors will be concerned by reduced cash flows as heavy discounting in the increasingly cut throat generic drugs space squeezes revenue.

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.

Comments from our readers

No comments yet