ASX CLOSE: Market closes higher; consumer staples rise

Tuesday 1st September 2009

Following the strong Chinese PMI data, regional markets across Asia are higher this Tuesday, shrugging off weaker overnight leads and yesterday's falls in Shanghai. The Nikkei 225 finished 0.4% higher while the Shanghai Composite and Hang Seng are currently up 1.2% and 0.6%.

In Australia, the ASX 200 closed 0.8% higher at 4514.6 on the back of strength across the defensive consumer staples sectors, financials and the materials sector. The materials sector was one of the biggest detractors early, but rallied strongly following the PMI data.

The telecommunications sectors were performing strongly across all three markets, boosted by defensive posturing ahead of traditional September weakness. Also, the oil and gas sectors in Japan and Hong Kong added significant points.

China revealing that manufacturing levels in August expanded at the fastest pace in 16 months is certainly a positive sign its economic growth trajectory is still intact. The one concern however, is whether the moderation in lending (and it was lending that fuelled the first half recovery) will see manufacturing activity begin to tail off in the last quarter.

It looks like we've started to see some funds flowing toward the more defensive sectors like the consumer staples and telecommunications. This could be the beginning of some sector rotation, especially considering the traditional weakness in the September / October period.

In economic news, the Australian Industry Group's Manufacturing Index returned a reading of 51.7, up 7.2 points; the first result showing expansion (above 50) in 15 months. Similarly, Chinese PMI (Purchasing Manufacturers Index) numbers showed manufacturing in August expanded at its fastest pace in 16 months with a reading of 54, compared to the previous month of 53.3.

Also, the Reserve Bank of Australia left interest rates on hold at 3%.

Looking across the sectors, the consumer staples (1.1%), financials (1%) and materials (1%) added most of the points.

In the consumer staples space, the likes of Goodman Fielder (2%), Woolworths (2.1%), Wesfarmers (1.8%) and Coca-Cola Amatil (1.4%) all rose as traders and investors alike began to increase their exposure to defensive names heading into the September period.

In the financials space, AMP (3.8%) was the best performer. The big four banks were all stronger, up between 0.7% and 3.3%, with ANZ the top performer.

Financial leads from the US were broadly weaker with the S&P Financials sector down 0.3% and the KBW Bank Index 0.6% lower. Despite overseas leads, the Australian major banks are continuing to benefit from ANZ's strong trading update yesterday. There were a number of bullish broker upgrades and target price rises for ANZ this morning, with Merrill Lynch keeping the Asia-focused bank its top sector pick.

The materials sector rallied strongly after the PMI release from China with Bluescope Steel (5.6%), Rio Tinto (2.2%), Orica (1.7%) and BHP Billiton (0.5%) the major movers. Base metals leads from the US were softer, with Copper down 4.2% and Zinc 1.6% lower. The Reuters CRB Index retreated 1.6% while the S&P basic materials sector lost 2.1%.

On the downside, the energy sector lost 0.2% with Woodside Petroleum down 0.9% and Santos 0.1% lower.

Prices are in AUD unless otherwise stated.
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