ASX CLOSE: Australian market ends week on back foot

Friday 21st August 2009

Despite some positive leads from European and US markets the Australian market came under heavy selling pressure over the course of the day as news circulated that funds were liquidating parts of their portfolio to participate in the Future Fund's $2.4b sell-down of its holding in Telstra. At its lows, the ASX 200 traded down by 2.7% to 4260 before eventually settling 87 points or 2% lower at 4290, a 3.8% decline on the week.

The selling pressure over the course of the day was both steady and relatively broad based with those sectors such as financials, industrials and materials, which had been well supported for most of the week, being sold off in favour of more defensively positioned sectors such as healthcare and information technology. In the end though, even these sectors finished in negative territory.

Telecommunications was the worst performing sector of the day down 4.5%, though this performance was distorted by the Future Fund's sale of Telstra shares which were placed to institutions at $3.47, a near 5% discount to the last traded share price.

Industrials also came under heavy selling pressure falling 2.3%, with Macquarie Infrastructure Group, Leighton Holdings and Qantas all weaker by more than 3%.

Financials were lower by 2.5% with reports suggesting institutions taking profits to fund their take-up of Telstra shares. With institutions having been large participants in the banks' recapitalisation rights issues, and thus sitting on large profits, the banks' high liquidity was seen as an obvious source of quick funds to reallocate to Telstra. All four of the major banks were trading lower between 2.4% and 4.4%.

Thank you Future Fund. The banks will no doubt be hoping the Future Fund reinvests some of its new found liquidity back into the sector after instos took the financials to task to take up the offloaded Telstra shares.

Despite higher overnight metals prices and some strong gains from global mining peers, BHP and Rio Tinto closed lower by 1.4% and 2.9% respectively with Rio seeing some selling on the back of its 65% decline in first-half profits to US$2.45b. Other names in the material sector that were heavily sold down were Amcor Limited (-3.8%) and Bluescope Steel (-4.2%). The overall sector was trading weaker by 1.6%.

Energy, after trading relatively flat for much of the day closed lower by 0.6% despite crude oil prices holding firm overnight at above US$72 per barrel. Santos, up 1.7% and Caltex, higher by 1.9% saw a majority of the buying interest while weaker names in the sector were Worley Parsons and Origin Energy which fell by 3.8% and 1.5% respectively.

Consumer discretionary traded lower led by Billabong which earlier in the day reported a 13% fall in full year net profit to $152.8m. Hesitant outlook statements about retailer demand and consumer spending hurt the stock which closed lower by 5.1%. Slower than hoped for forward orders out the US are likely to see Billabong shares come under some near term selling pressure, particularly as some investors were positioning themselves in the stock in anticipation of a recovering US consumer. They may need to be patient on this front.

Fairfax Media and Harvey Norman also closed weaker by 5.0% and 3.7% respectively to drag the sector 2.6% into negative territory.

Consumer staples faired little better falling 0.9% with Goodman Fielder, down 4.3%, and Metcash, lower by 1.9%, being the main laggards.

Healthcare, having been the clear underperformer in recent sessions, was the only sector to be trading consistently in positive territory before it too ended the day down by 0.1%. CSL closed firmer by 0.8% after being sold off on its profit result earlier in the week while Cochlear gave up earlier gains to eventually closer weaker by 1.2%.

In regional markets, the major Asian indexes were all under selling pressure, led by the Hang Seng market, which was trading lower by 1.6% at 20007 while the Nikkei was also weaker by 1.3% at 10247. The Shanghai index however, was showing sound resilience to continued reports that capital requirements for Chinese banks would be tightened, to be trading higher by 1.3% at 2949.

After starting the session above the 0.8300 level, the AUD was trading off in line with equities to be hovering around the 0.8250 level while oil was trading at US$72.45

Prices are in AUD unless otherwise stated.
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