ASX CLOSE: ASX 200 finishes higher on flat trade

Thursday 3rd December 2009

In Asia, regional markets are mostly higher this Thursday as a weakening yen boosted Japanese exporters and positive comments from the Federal Reserve lifted optimism. The Nikkei 225 is the best performer, adding 3.2% while the Kospi is 1.3% higher and the Hang Seng 0.6%. In China, the Shanghai Composite is 1% lower.

In Australia, the ASX 200 finished 0.3% higher at 4774.60, off earlier highs of 4787 and underperforming most of Asia. Despite the relatively flat trade, we continued to see a rotation of funds into those stocks more leveraged to the global recovery at the expense of the more defensive sectors.

The continued outperformance of gold, coupled with the weaker US dollar drove the base metals complex higher, in turn underpinning recent moves in resource stocks. Also, advancements in key iron ore and LNG projects buoyed a lot of the small and mid cap stocks.

The materials sector has broken out to the upside. We're really starting to see some momentum build in specific resources stocks. For example, the likes of Murchison Metals, Mount Gibson Iron Ore and Perilya, just to name a few are really starting to look good on the charts.

Many market participants believe we're likely to see increased buying of stocks into year-end as those institutions that are underweight stocks vs their benchmark look to lift their equity weighting. Most of this money is likely to flow towards more cyclical stocks.

In economic news, Australian retail sales rose 0.3% in October from September compared with an expected gain of 0.2%. This comes despite an interest rate rise from the RBA in October. The data supports the RBA's decision to begin removing the emergency rate cuts in October, however the two subsequent rate hikes in November and December may see retail sales soften over the Christmas period.

Turning our attention to the market and it was a relatively flat day's trade for the ASX. The consumer discretionary sector led the market higher, finishing up 1% as the likes of West Australia News, News Corporation, Tattersalls and Tabcorp Holdings fronted gains. They were all up between 1.2% and 2.6% while retailers David Jones (0.4%), Harvey Norman (1.1%) and Billabong International (0.8%) all shrugged off concerns that yesterday's third straight interest rate rise could trigger a weaker-than-expected Christmas shopping period.

The materials sector was the other major contributor, adding 0.9%. Iron ore giant Fortescue Metals Group gained 2.3% while diversified miner BHP Billiton was up 1.3%, helped by stronger base metals prices overnight. Despite gold continuing its push higher to a record of US$1226.55 per ounce, both Lihir Gold and Newcrest Mining retreated today, finishing the session lower by 1.3% and 0.2%. Also, Bluescope Steel lost 0.7% despite a positive broker note.

In a report from Goldman Sachs JBWere, it kept its ‘buy' rating on Bluescope Steel, with a price target of $3.76 after the restart on second Indonesia plant metallic coating line construction. The broker expects the Indonesian unit to return to profit this FY after an $18 million loss last FY, and surpass FY06 profitability in FY12. In recent weeks eastern Asian hot-rolled coil prices, which have been Bluescope's key share price driver, have risen to US$510 a ton after price gains in China. It expects FY10 eastern Asia HRC price of US$514 a ton this FY and US$535 in FY11, which will add about 25% to FY10 EPS and 10% in FY11.

The energy sector also chipped in with gains of 0.4% despite a 2% fall in Crude Oil prices overnight after government data showed a larger-than-anticipated increase in stockpile levels. WorleyParsons added 1.8% to be the best performer while Origin Energy rose 1.2% and Santos 0.9%. On the downside, Woodside Petroleum retreated 0.9% despite receiving positive news from the WA government.

A large hurdle in Woodside Petroleum's growth ambitions became a step closer to being removed after the Western Australian government yesterday gave the Browse Basin joint venture partners 120 days to choose where to build the project and three years to work towards a final investment decision. Woodside wants to get cracking on Browse and build it at a new Kimberly LNG hub, but its partners, including Chevron, BHP Billiton, BP and Royal Dutch Shell have been dragging their heels, still mulling the alternative of piping the output to the North West Shelf at a much later date. Woodside wants to make final investment decision by 2011 and government's move supports this plan. Browse Basin is one of three LNG growth options for Woodside, along with Sunrise LNG and the expansion of Pluto LNG. Woodside won't rule out equity raising if all of them go to plan.

In other interesting broker chat, a report from Macquarie Group said that given the recapitalisation of Australia's corporate balance sheets, with average leverage headed for a decade low of 30% by end-FY10, corporate focus should turn to M&A, and opportunities are more likely to be offshore due to strong AUD and lower regulatory risks. It lists CSL, OZ Minerals, Lihir Gold, Sims Metals Group, Resmed, Tatts, Lend Lease, AWE, Beach Petroleum, Sonic Healthcare, WorelyParsons, Ansell, Aristocrat, Iress and SEEK as having capacity and willingness to make offshore acquisitions.

Prices are in AUD unless otherwise stated.
IG Markets Ltd, Australian Financial Service Licence No. 220440. ABN 84 099 019 851.
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