ASX CLOSE: Markets finish higher; 5000 target in reach

Tuesday 29th September 2009

Apart from in China, Asian markets were all higher this Tuesday as the strong overnight leads from Wall St spurred gains across the markets, with the energy and technology spaces leading the way. The Kospi and Nikkei 225 both finished 0.9% higher. The Hang Seng and Shanghai Composite are still trading, up 2.2% and down 0.4%.

In Australia, the ASX 200 was 1.6% higher at 4753.1 with all sectors closing in the black. The close above 4750 has placed it well for a tilt at 5000 sooner rather than later. The cash just continues to come as funds realise they were too bearish earlier in the year and try to play catch up.

The combined affect of public holidays across Asia and three weeks of school holidays in Australia will likely see trading volumes subdued well into October. However, with the US reporting season just around the corner, investors won't have to look far for the next catalyst.

The recent collapse of the US dollar is likely to underpin another strong US earnings season. Once again, it looks like the bar has been set too low for US corporates, especially given that 47% of S&P 500 revenues come from offshore. This tailwind, combined with the marked pickup in economic data could fuel the best 4^th quarter rally in equities for more than a decade.

In economic news, the Australian Government 2008/2009 final budget deficit has come in at $27.1 billion or 2.3% of GDP which is narrower than May forecasts of $32.1 billion.

Looking across the sectors, the financials (2%), industrials (1.9%), materials (1.6%) and consumer discretionary (1.2%) sectors added the bulk of the points.

The financials sectors continued its strong run higher today, helped by a strong set of leads from the US. The S&P Financials sector and the KBW Bank Index were both up 3.4% and 2.8% respectively. Citigroup was the best performer, up 4.3% while Bank of America rallied 3.7%, JPMorgan 2.7% and Goldman Sachs 1.7%.

Locally, AMP and Suncorp-Metway led the gains, rising 5.1% and 4.6% respectively. In hot pursuit were Westfield Group and Axa Asia Pacific, up 3.7% and 3.2%. Elsewhere, the big four banks were well supported, rising between 1.3% and 2.1%, with Commonwealth Bank of Australia the best performer.

Bendigo & Adelaide Bank finished 2.8% higher after Royal Bank of Scotland upgraded it from a ‘sell' to ‘hold' as it believes Australia's regional banks are well placed for an economic recovery with "strong capital buffers for growth, signs of normalisation in funding markets and a softer landing for the economy than we had first thought". However, it continues to prefer Bank of Queensland and increases its target from $10.47 to $12.36 while reiterating its ‘buy' rating.

On the downside, Macquarie Group was the worst relative performer, only up 0.8% after Merrill Lynch said this morning it believes the shares are fully valued at current levels with 18 times 2010 earnings looking ‘full' versus likely earnings. It believes Macquarie Group needs to deliver 23% a year revenue growth, or 14% a year on a recurring basis to achieve 20% return on equity by 2012, something we view as challenging.

In the industrials space, CSR, Brambles, Leighton Holding and Qantas were the best performers, all up between 1.4% and 5.6%, with CSR topping the list. Qantas reported this morning that its passenger numbers in August rose 6% from a year ago, with capacity cuts helping its revenue seat factor.

In the materials sector, a following strong overnight leads the gains were dominated by the big miners with Orica, BHP Billiton, Rio Tinto and Alumina all rising between 1.7% ad 2.6%, with Orica the standout.

Among consumer discretionary stocks, Ten Networks was the top advancer, up 5.1% after Morgan Stanley reiterated its ‘overweight' rating after CanWest exited its holding in the stock. It said "this is an incremental positive as a substantial overhang has been removed. Looking forward, investors' focus will now be squarely on the timing and magnitude of Ten's EBITDA/EPS recovery from the current downturn".

Also, Billabong International finished 2.2% stronger after US clothing and footwear company Zumiez boosted its 3^rd quarter profit forecast to 12 - 14 US cents from 5 - 7 US cents.

Prices are in AUD unless otherwise stated.
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