ASX CLOSE: ASX reaches fresh eight week lows

Thursday 5th November 2009

Asian markets are broadly weaker this Thursday afternoon with the Nikkei 225 down 1.2%, the Kospi weaker by 1.5% and the Hang Seng off by 0.9%. The Shanghai Composite is bucking the negative trend to be marginally higher by 0.1%. The current pessimism gripping the Asian markets has not been helped by comments out of South Korea suggesting it was "unclear" whether the current economic recovery can be maintained.

It's highly likely that after the "non-event" Fed decision that Asian markets will trade flat to slightly lower in coming days, with the next catalyst for stocks to move definitively in a particular direction being the US non-farms payrolls report due out Friday morning (US time).

The final hour sell down in the US seemed to capture the markets' confusion about the true implications for what potential rate hikes might mean for the US economy, however the absence of any definitive changing in narrative in the Fed's statement would have pleased those continuing to use the USD funded carry trade to leverage into riskier asset classes.

The Australian market was fairly defensively positioned today, with the ASX 200 reaching fresh 8 week lows, closing down 32 points or 0.7% at 4508, just managing to hold onto 4500. We had been looking for a higher open today, and the market did trade up to 18 points higher, but it seemed that final hour sell-off in the US really dampened the markets' spirits. The market is now down 387 points or 7.9% from its highs of 4895 reached on 15 October and definitely seems to be out of steam.

The market appears to be finding it very easy to rollover whenever it starts to see any positive momentum. This is a classic sign the market has run out of steam and looking a bit tired. The fact that we had a weaker USD and broadly higher commodity prices and still saw materials names trading convincingly lower, suggests investors are both uncertain and cautious about the sustainability of the economic recovery. The unwind of the "short USD/long commodity (risky assets) trade seems to be front of mind for many investors who don't want to repeat their mistakes of the past and be the last one out the exit door.

We saw broad based losses across our heaviest weighted sectors today.

Financials were weaker by 0.5% with the biggest drag on the sector being the ANZ Bank which went ex-div and thus traded without its 56c dividend. Its shares closed lower by 66c or 2.9%. All of the other Big-4 banks finished higher with Commonwealth Bank being the best performer, up 0.9%. Also weighing on the sector were Macquarie Group, AMP and Bendigo Bank which all finished lower between 0.9% and 2.2%

UBS reiterated its mildly overweight stance on the Australian banks sector after Westpac Banking Corporation's FY result rounded off the earnings season. It said "we remain structurally positive about the banks given improved industry dynamics and economic leverage. We see this sector as relatively attractive compared to the market. However, recent share price moves have been aggressive. With banks now trading on 2.1 times book, positive news is now required to drive further outperformance".

Perhaps a little surprisingly, materials names came under heavy selling pressure today with the sector finishing lower by 1.4%. Despite a weaker USD overnight and broadly higher base metals prices, heavyweight miners BHP and Rio Tinto were down 1.4% and 1.3% respectively. Notwithstanding gold reaching new all-time highs of US$1097 overnight, earlier gains from goldminers Lihir Gold and Newcrest Mining were also eroded with both companies finishing in negative territory by 0.9% and 1% respectively.

Industrials finished the day as the markets' best performing sector, up 0.5%. This was largely thanks to Transurban shares which soared 19.4% to $5.24 after the company revealed it had rejected a takeover approach from two Canadian pension funds. Details of the offer were not made public but the Board rejected the deal in its current form saying it was both incomplete and highly conditional.

Dragging on the sector were Brambles, Asciano and Downer EDI which all finished lower between 2.1% and 3.4%.

Another sector managing to eke out a 0.1% gain for the day was Energy. Buoyed by a 1% gain in the crude price to back above US$80/b, major names were generally higher early but then drifted along with the broader market in afternoon trade. Woodside Petroleum and Origin Energy managed to hold onto gains to close up 0.4% and 1% respectively while Oil Search, Caltex and Santos finished weaker between 0.5% and 1.2%.

Prices are in AUD unless otherwise stated.
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