ASX CLOSE: ASX 200 has rollercoaster session

Thursday 17th December 2009

Across Asia, regional indices are broadly lower after Hong Kong's central bank said the city may face sharp corrections in asset prices should capital flows which have fuelled Asian markets begin to reverse. The Shanghai Composite is the worst performer in the region, lower by 1.6% while the Kospi and the Hang Seng are weaker by 0.7% and 0.9% respectively. The Nikkei 225 is bucking the negative trend to be higher by 0.3%, once again being supported by a weaker Yen which benefits its highly export-orientated economy.

In Australia the ASX 200 had a rollercoaster session. After choppy trade in the morning session, the benchmark index was convincingly higher for most of the afternoon (touching a high of 4703) before seeing a late day pull back led by the financial sector. The market ended the day higher by 0.2% at 4670.30. Gains for the day came primarily from the materials, property, industrial and consumer discretionary sectors.

Financials had been a drag on the market for most of the day as institutions reshuffled their holdings to free up cash for the NAB rights issue announced today as part of the bank's AXA AP takeover bid. Gains across the other sectors had been enough to offset the financial weakness but when NAB resumed trading down by more than 5% the market rolled over.

The big news of the day was undoubtedly National Australia Bank's (NAB) surprise move on AXA Asia Pacific (AXA AP), scuttling AMP's ambitions for the company. NAB has offered an all cash/cash and scrip bid for AXA AP at an equivalent of $6.43 per share, which values the Australian and New Zealand business at $4.61bn. The deal is subject to completion of due diligence and AXA SA, AMP's bid partner, acquiring the AXA AP Asian assets. NAB will fund the deal via a $1.5b rights issue, scrip and existing capital resources.

NAB shares finished down 4.6%, AXA AP closed higher 12.7% and AMP shares rallied by 4.1% on the news that it has been trumped - clearly suggesting shareholders were not behind the AMP Board in pursuing AXA AP. CFD traders willing to bet on the takeover outcome could have made a killing had they bought into AXA AP yesterday.

AMP's initial move on AXA Asia Pacific evidently forced NAB's hand into making this move. That said, the deal will be transformational and will give NAB a clear edge over the other Big-4 banks in the wealth management space. AXA AP shareholders will no doubt be pleased having yesterday stared down the prospect of its Board rejecting the AMP bid and seeing the share price plummet.

NAB's move on AXA AP had clear ramifications across the financial sector with the other major banks broadly lower. ANZ recovered late in the day to finish up 0.4% while Commonwealth Bank and Westpac were both lower by 1.1%. The rationale here is that for the last couple of years the Big-4 banks have been in intense competition with each other to establish themselves as the dominant player in the wealth management space. NAB's tie up with AXA AP, combined with its recent acquisition of Aviva Australia and its strategic alliance with JB Were now gives it a clear advantage over the others.

It's amazing what a bit of M&A can do to reinvigorate interest in the markets. We've been commenting (and complaining for some weeks now) about how mundane and pedestrian the market had become with seemingly little catalyst to "get involved" heading into the Christmas/New Year break. Today's move by NAB on AXA AP pumped a bit of life back into the market and things just felt healthier today. It's certainly a positive sign for our market heading into 2010 that corporates are willing to compete for assets that offer strategic benefits and platforms for future growth.

Not surprisingly materials were the best performing sector on the session closing firmer by 0.8% but well off earlier highs. Despite a marginally stronger USD overnight, commodity prices saw solid gains in the US session, with gold and base metals all convincingly higher. BHP and Rio Tinto closed higher by 0.9% and 1.2% respectively with the latter having its target price raised by RBS Morgans to $78.69 from $70.39.

It was nice to see commodities rising and material names being bid in the faces of a higher USD. This augurs well for 2010 and provides a degree of confidence that we won't necessarily see a precipitous unwind of the risk trade - which is one of the markets' greatest fears heading into next year.

With the market on the front foot for much of the day, the defensively positioned consumer staples names were out of favour with Wesfarmers and Woolworths down 1.5% and 0.9% respectively.

Prices are in AUD unless otherwise stated.
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