ASX CLOSE: Market rallies strongly into the close

Friday 28th August 2009

Asian markets are mixed in Friday trade with the Nikkei finishing 0.6% higher despite Japanese unemployment reaching record levels of 5.7%, and the Kospi up by 0.5%. Both markets closed well off their highs. The Hang Seng and Shanghai indexes are not fairing so well, down 0.5% and 2.6% respectively.

In Australia, the ASX 200 was 0.9% higher at 4489.6 after trading as high as 4492.6 earlier in the session.

Investors should see it as a positive sign that the market didn't succumb to typical Friday afternoon profit taking, with the market rallying strongly into the close.

Looking across the sectors, gains were fairly broad-based with the energy (2.2%), healthcare (1.8%), consumer discretionary (1.3%) and financial (1.2%) sectors accounting for most of the points.

Oil Search (6%), Origin Energy (2.3%), Santos (2.2%) and Woodside Petroleum (1.8%) were the big movers in the energy sector. Overnight, Crude Oil briefly traded below US$70 per barrel but rebounded sharply given the strength in equity markets, ending a two day slump and settling 2% higher at US$72.83. It is currently trading at $72.50.

On the downside, Caltex Australia finished 5.9% weaker after scrapping its dividend. Its $298 million first half operating profit was strong but not paying a dividend shocked the market.

There was not a lot to like about this result. While on face value it came in above its guidance range, this was achieved only with the benefit of a $55m currency gain. When you also consider it cut its dividend from 36c to zero and forecast a bleak outlook for refiner margins, you'd have to think there are better opportunities elsewhere in the sector.

In the healthcare sector, Sonic Healthcare and CSL were the two major risers, up 8.6% and 1% respectively. This morning, Sonic reported a FY profit before items of $315.1 million, beating consensus market forecasts of $302.8 million.

Sonic confirmed itself as a market darling posting a better-than-expected result, upping its final dividend by nearly 10% and forecasting it would comfortably achieve double digit earning growth next year.

With a strong platform for organic growth and boasting an impressive war-chest of $775m for acquisitions it's no surprise investors are piling into the stock today.

In the consumer discretionary space, Harvey Norman and David Jones were the standout performers, up 16.9% and 4.8% respectively after Harvey Norman delivered a very strong result. It reported a full year net profit of $214.4 million, well ahead of analysts' consensus of $197.3 million. Chairman Gerry Harvey expressed cautious optimism that the company will have a ‘positive future'. He also said the company's New Zealand business is outperforming. However, conditions in Ireland and Australia remain challenging but results in Australia have improved significantly in the second half.

The Harvey Norman result, while 40% down on last year, is clear confirmation that analysts became too pessimistic about the health of consumers and certainly underestimated their resilience.

The financials sector was strong, led by gains in QBE Insurance Group (4%) and AMP (2.7%), while the big four banks were all up between 0.7% and 1.6%. Overnight, leads were positive with the S&P Financial sector up 1%. American International Group jumped 26.9% after the new CEO said he would not pursue a fire sale strategy for the company's troubled assets. Citigroup also rose 9.1% on rumours hedge fund guru, John Paulson, had been accumulating shares in the company.

Elsewhere, the materials sector added some points with the likes of Amcor, Bluescope Steel, Alumina, BHP Billiton and Rio Tinto all up between 0.2% and 2.3%.

Prices are in AUD unless otherwise stated.
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