ASX CLOSE: Markets rise slightly; mining shares gain

Tuesday 15th September 2009

Across the Asian region, markets are predominantly higher today following solid overnight leads from the US and gains among mining shares. The Kospi and Nikkei 225 were up 1.1% and 0.2% while in China, the Shanghai Composite is still trading, up 0.5%. The Hang Seng is closed for trade due to a Typhoon warning.

The ASX 200 was up 0.2% at 4540.3 after this morning's strong start was reversed, dragged lower by retreating financials; the financials index fell more than 1% intraday.

The big news today was the government announcing that its wants to structurally split Telstra's retail and wholesale divisions. Canberra wants Telstra to do this voluntarily, however they will impose a "strong functional separation" framework on Telstra if this is not the case. The market does not like the news with Telstra down 2.8%.

The market clearly wasn't expecting this, hence the reason why Telstra was down 4.3%. It shook retail shareholders confidence levels and certainly clouds the outlook for the company.

The markets selloff from earlier highs today is confirmation that investors are far from convinced by the September resilience, especially given its historical weakness.

This week is key given current headwinds the market is facing. If it can't go down this week then we could see end-of-year upside targets reached sooner rather than later.

In the Reserve Bank of Australia's September 1 policy meeting minutes, they maintained their tightening bias but indicated they are in no hurry to hike amid doubts about the sustainability of the global and domestic economic recovery. They will await further economic data before deciding on when to raise rates. An October rate hike looks highly unlikely, with focus now turning to November or December.

Also, the total number of houses and apartments that started construction in Australia in Q2 2009 fell 3.7% from the first quarter to a seasonally adjusted 30,411.

The consumer discretionary (1.6%) and materials (0.8%) sectors were the biggest risers while the financials steadied late, up 0.1%.

In the consumer discretionary sector, Harvey Norman (6.4%), Tabcorp Holdings (2.7%), News Corporation (2.5%) and Consolidated Media (2%) were the major gainers.

Harvey Norman was up on strong volumes today for what would appear to be no specific reason. It has outperformed David Jones and JB HiFi since the beginning of August so maybe we're seeing some momentum buying. It will be interesting to see if there are any substantial change of shareholder notices after market.

With Telstra potentially needing to divest its 50% stake in Foxtel, the battle for the holding has begun to hot up. This adds further fuel to the takeover saga with Consolidated Media and News Corporation having first and last bidding rights on Foxtel. With Seven keen to acquire this asset, its desire to get its hands on Consolidated Media grows by the day.

Materials managed to trade consistently in positive territory over the course of the day, eventually finishing higher by 0.8%. Heavy weight miners BHP and Rio Tinto closed higher by 1.1% and 1.6% respectively on the back of positive leads from offshore markets. Local resource stocks were also boosted on the day with Macquarie Bank being the latest broker to upgrade its 2010/2011 base metals forecasts.

The retreat in the gold price back below US$1000 oz saw the gold producers come under some selling pressure with Newcrest Mining down 1.4% and Lihir Gold lower by 0.3%.

Elsewhere, Sims Metal (-1.7%) CEO Dan Dienst said the group could look at acquisition targets and he expects there to be more consolidation in the scrap metal market. He said "there will be a culling of weak and inefficient companies from the herd". The firm could be looking at targets in North America, UK and in the electronics recycling market globally.

The energy sector was a mixed bag with WorleyParsons, Origin Energy and Caltex all higher between 1.3% and 0.5%.

In the financials space, Insurance Australia Group, Macquarie Group and QBE Insurance Group were the biggest risers, all up between 0.6% and 1.4%. On the downside, Westpac Banking Corporation and Commonwealth Bank of Australia were down 1.2% and 0.3% respectively.

Elsewhere in the market, Graincorp had a strong day's trade, up 4.1%. ABN Morgan's reiterated it's ‘buy' recommendation on the stock on expectations it could beat grain forecasts by some 4.2%. Australian Bureau of Agricultural and resource economics confirmed new crops likely to be the best since 2005 - 06.

Also, James Hardie (-1.1%) CEO Louis Gries said he expects positive year-on-year housing starts data in US between March & May 2010. He said the US housing market hasn't bottomed yet but is getting close. This coincides with a Goldman Sachs upgrade to US housing starts for 2010 from 730,000 to 850,000.

Prices are in AUD unless otherwise stated.
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