ASX CLOSE: Chinese data boosts the mining sector

Monday 11th January 2010

In Asia, regional equity markets have started the week on the front foot. Gains have been seen across the board as news of surging Chinese exports and imports have boosted stocks. The Shanghai Composite is the best performer, currently up 1.5% while the Hang Seng and the Kospi are higher by 1.4% and 0.2% respectively. Japan's Nikkei 225 is closed today due to their public holiday.

Down under, the ASX 200 finished the session 0.8% at 4950.7 after earlier touching highs of 4955.1. The materials, energy and financial sectors added the bulk of the points thanks to stronger overnight leads and stronger-than-expected import and export data from China.

The Chinese data has really boosted the mining sector. Combined with broad based US dollar weakness, you have the recipe for solid gains.

There's no doubt the global recovery is heading in the right direction. This latest data shows that demand for products produced in China is improving which can only be seen as a positive sign for the global consumer.

The Australian market has really found itself in a sweet spot of late. With the Fed likely on hold for most of 2010, associated US dollar weakness continues to support US dollar denominated commodity prices.

This, coupled with the improving fundamentals out of China has created a perfect storm for economies leveraged to commodities and the developing world.

Momentum in the sector is very strong and really shows that demand is far outstripping supply in the short term. Fortescue Metals Group and Murchison Metals are two prime examples.

In economic news, Australian job ads were up 6% in December from November, the fourth solid monthly rise in the last five months. In a note from ANZ, acting chief economist Warren Hogan said the pace of increase in Australian job ads is helping to stabilise the unemployment rate, balancing out strong population growth. ANZ expects to see a further 30,000 jobs created across the economy in December. The data suggests the peak in unemployment will be far below the originally feared rates of 7% to 8%.

Turning our attention to the market and trade today was dominated by gains in the materials sector. The sector was easily the best performer, rising 2.1% with Alumina the standout, up 6.7% ahead of Alcoa's fourth quarter earnings tomorrow morning.

Fortescue Metals Group, Lihir Gold, BHP Billiton and Newcrest Mining all added significant points as well, all up between 1.7% and 4.6%.

Spot gold was sharply higher, currently up 1.3% at US$1153.1 per ounce in Asian trade as it broke up through Friday's close and technical resistance. In a report from a trader in Sydney, they said gold rapidly moved up after it broke technical resistance. With new money coming in from the index rebalancing, it's going to go higher still. Commodity indices started their annual rebalancing Friday, due to continue this week.

Elsewhere in the sector, Western Areas finished 6.7% higher after releasing an update on details of production ramp ups and drilling results. It said first production from the T5 nickel deposit is due in the March quarter and output from the spotted Quall mine in April. It also said recent drilling results from the above mines have exceeded expectations and confirm the quality of the deposits and their potential for further expansions.

The industrials sector was a strong gainer, rising 0.7% as the likes of Leighton Holding and Downer EDI added 3.8% and 2.7% respectively.

The energy sector benefitted from a stronger oil price, rising 0.6%. Caltex Australia and Woodside Petroleum fronted the sector, up 3.5% and 1.2% respectively.

In a report from Goldman Sachs JBWere, the broker boosted its target for WorleyParsons by 5.6% to $33.79 and reiterated its ‘hold' recommendation for the stock after incorporating recent acquisitions Evans & Peak and CNEC Engenharia into its forecasts. It said the acquisitions are roughly the same in size and the integration of these businesses results in modest EPS accretion of around 1.8% in FY10 and 3.5% in FY11.

Elsewhere, the financials sector added points, rising 0.5% as the big four banks all finished in the black, up between 0.1% and 1.3%, with National Australia Bank the strongest.

The defensive telecommunications and utilities sectors were the worst performers, down 0.9% and 0.6% respectively.

Prices are in AUD unless otherwise stated.
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