ASX CLOSE: Markets pause for breath

Tuesday 25th August 2009

After yesterday's big rally and the subdued session in the US overnight, Asian markets paused for breath today, trading modestly weaker across most major markets. With little in the way of economic news for the market to hang its hat on, the catalysts to push higher were not evident.

The Nikkei was down 0.8% while the Hang Seng was seeing slightly more selling pressure, down 1.5%. Shanghai, as always seems to be the case, was doing its own thing, trading sharply lower by 5.6%.

In Australia, the ASX 200 finished down 0.5% at 4405.8 after trading as low as 4389.90 earlier, with the market held back by weakness in the consumer staples, materials and energy sectors.

The market as a whole no longer looks cheap on a number of valuation metrics, with professionals now having to earn their worth, having to decide whether or not improving economic data justifies current stock prices.

Despite some strength in base metals overnight, it didn't translate into gains down under. There's some concern that china's re-stocking of metals will soon begin to slow, with such a move weighing on metals prices considerably.

The consumer staples (-1.1%), materials (-0.9%), health care (-0.7%), energy (-0.3%) and consumer discretionary (-0.2%) sectors detracted most of the points.

In the consumer staples sector, Australia's second largest retailer, Wesfarmers did most of the damage, down 5.7% and detracting 7.7points from the index following news Woolworths had formed a JV with number two US home improvement retailer Lowes to develop home improvement stores across Australia.

Bunning's have basically been unchallenged in the home improvement space so there's plenty of room for another big player given the Australian hardware market is worth approximately $24 billion. However, the smaller players are likely to feel the squeeze.

Elsewhere, Foster's Group was flat. It also reported this morning, announcing its FY net profit increased nearly fourfold to $438.3 million, beating market expectations of $424.6 million. Australia's beer market remains very robust but there are serious concerns surrounding the state of their troublesome wine business as conditions in key wine markets remain challenging.

In the materials space, Fortescue Metals Group (-2.8%), Alumina (-2.3%), Bluescope Steel (-2%), Newcrest Mining (-1.8%), Orica (-1.5%) and BHP Billiton (-1%) were the major detractors. This came despite positive leads from the London Metals Exchange with Copper rising 2.7%, Zinc 1.3% and Nickel 1.8%. There are lingering concerns that China may be close to pulling back on their restocking which would weigh on metal prices.

Among the health care names, Ansell (-3.7%), Sonic Healthcare (-2.1%) and CSL (-0.6%) were the main decliners.

In the energy sector, the likes of Origin Energy (-1.8%), Woodside Petroleum (-1.7%) and Santos (-1.5%) weighed on the overall sector.

Billabong International (-4.1%), Harvey Norman (-2.8%), David Jones (-2.5%) and Aristocrat Leisure (-2.2%) took the majority of points out of the discretionary sector.

Aristocrat Leisure this morning reported a 1H09 net loss of $33.4 million which was inline with recent guidance and market expectations. However, the key focus for investors is the firm's strategic review. Aristocrat said it will look to focus more heavily on its key markets of North America, Australia and Japan and exit about 30 low margin regions over the coming months. Looking forward, CEO Jamie Odell said "global conditions are challenging and the result is disappointing but Aristocrat has a robust games pipeline in the second half".

The financials sector also dragged after leads from the US were negative. Suncorp-Metway (-2.8%), QBE Insurance Group (-1.6%), Westpac Banking Corporation (-1.4%) and Axa Asia Pacific (-0.7%) were the major losers. In the US, the financials sector was one of the biggest detractors as highly regarded banking analysts Richard Bove and Meredith Whitney commented on the possibility for more bank failures. Consequently, the S&P Financials sector lost 0.9% while the KBW Bank Index was 1.6% weaker.

Prices are in AUD unless otherwise stated.
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