ASX CLOSE: Positive start to the week

Monday 24th August 2009

The Asian region as a whole started the week positively, powered by strong moves among commodity producers following very bullish Friday night leads from the UK and US. Japan's Nikkei 225 was the best performer, up 3.4% while China's H-Shares are 2.5% stronger and the Hang Seng is up 1.9%.

In Australia, the ASX 200 finished 3.2% higher at 4426.1, it's high of the day. The market was bullish across the board with the materials, financials, industrials and energy sectors adding the majority of points.

It's a supply and demand game and there simply isn't enough supply to satisfy the buyers. There's so much cash that still needs to be invested, both domestically and from offshore.

After Friday's across-the-board selling to purchase Telstra stock from the Future Fund, the market is well and truly back in buying mode. Everyone was calling for a 5 - 10% pullback. From the high of 4509.5 to Friday's low of 4260.7, the ASX 200 was down 5.5%. With so many funds underweight and desperate to buy, there's a very real chance that we've seen the pullback everyone wanted.

Friday's comments from Ben Bernanke, combined with the sharply higher existing home sales numbers were the icing on the cake. It spurred a lot of optimism around the globe that the worst of this crisis is behind us. This is being reflected in equities markets as more participants gain faith that the recovery is real.

The subprime housing market started this whole fiasco. Now we're seeing concrete evidence that it is beginning to mend, which is very positive indeed and one of the final pieces of the puzzle.

Looking across the sectors, the materials (3.9%), energy (3.7%), financials (3.6%), consumer discretionary (3.5%), industrials (3.2%) sectors added the majority of points.

The big names across the materials sector were all higher with the likes of Alumina (8.4%), Rio Tinto (4.7%), BHP Billiton (4.3%), Orica (4.1%) and BlueScope Steel (3.7%) fronted the pack. Leads for the sector were very bullish with base metals strong on Friday evening. On the London Metals Exchange, Copper rose 3.5%, Zinc 1.7%, Aluminium 1% and Nickel 1.9%.

Fortescue Metals Group (3.1%) reported this morning that it had formalised its joint venture with BC Iron over the development of the Nullagine iron ore project in the Pilbara region of Western Australia. This is ahead of schedule and is designed to fast track the project to production.

In the energy sector, Origin Energy (5.1%), Santos (4.8%) and Woodside Petroleum (4.1%) were the major drivers following Friday's strong session for oil. Crude Oil futures rallied above $74 per barrel, their highest level in 2009, as weakness in the US dollar and positive economic leads from both the US and Europe spurred buyers.

In stock specific news, WorleyParsons (-3.8%) reported a full year net profit of $390 million this morning, missing analyst's consensus of $408 million. The stock opened down considerably but rallied intraday as brokers viewed the weakness as an opportunity to buy. Chief executive John Grill said "they expect a modest earnings decline this financial year after posting a 14% rise in FY09 net profit. WorleyParsons won 23 new long-term contracts and renewed nine others in FY09. It also expects to win new contracts for hydrocarbons, nuclear, minerals and water infrastructure and extraction in the Middle East, US and Australia".

Despite Worley Parson's 14% jump in net profit, its guidance for a lower result in 2010 saw the stock trade weaker having run up more than 33% since the start of July. The company's predictions of margin pressures and softer market conditions may disappoint some investors given the emerging global recovery but any short term weakness is likely to be seen as a buying opportunity

The financials sector was also buoyant with Suncorp-Metway (4.8%), ahead of its full year results tomorrow and Axa Asia Pacific (4.5%) showing the way. The big four banks were all in the black, up between 2.4% and 4.4%, with Westpac Banking Corporation the best performer. Financial leads from the US were positive with the KBW Bank Index rising 2.4%.

In the consumer discretionary space, Billabong International (7.6%), Harvey Norman (4.8%), News Corporation (4.8%) and Fairfax Media (3.6%) led the sector.

Fairfax Media announced this morning an annual loss of $380 million with underlying earnings, excluding write downs, falling 40%. However, this was slightly ahead of market expectations and there were a number of positives to come out of the result.

The Fairfax result shows the industry is at an inflection point. While the advertising downturn seems to have bottomed, a rebound in demand has not yet commenced. Its decision to not pay a dividend suggests a lack of clarity as to when demand may re-emerge.

Among industrial stocks, Leighton Holdings (8.5%), Brambles (5.1%), Qantas (4.8%) and Macquarie Infrastructure Group (4.6%) were the biggest gainers, continuing to benefit from fund's reweighting from cash to equities, especially toward more cyclical names.

Prices are in AUD unless otherwise stated.
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