ASX CLOSE: Another tough day for the market

By Phil Boeyen, ShareChat Business News Editor

Wednesday 9th December 2009

Across Asia, all regional markets are lower today after concerns over Dubai and Greece's debt situations weighed on market sentiment. The Shanghai Composite is lower by 1.3%, making it the biggest decliner. Elsewhere, the Nikkei is weaker by 1.2% while the Hang Seng is down 0.9% and the Kospi is higher by 0.1%.

In Australia, the ASX 200 finished down 0.7% at 4637.9 after trading as low as 4596.2 earlier. It was another tough day for the local market, with continued USD support weighing on commodity prices and inturn incurring selling pressure on the materials and energy sectors.

Rising commodity prices over the last 6 months have been the beacon of the economic recovery, but renewed strength in the USD is taking the gloss off metals prices and causing investors to question the underlying strength of the recovery we have seen to date. This is clearly evident by selling we have seen across the commodity space in recent days.

Losses however have not been confined to the commodities space but have also been seen across the financial sector and consumer related sectors.

The market is very mixed in its views of where we'll be by Christmas and whether or not the usually reliable Santa Claus rally will arrive this year. There are just so many factors at play making the short-term outlook very hazy indeed.

Upgrades to commodity prices were expected to drive significant materials outperformance and the market higher in December. However, the bounce in the USD really wasn't factored in and has put a dampener on this school of thinking.

Still in the bull camp, and the historical data supporting the Santa Claus rally is pretty compelling indeed. Over the last 28 years, if you had bought around mid-December, let's say the 12th and held for the next 15 or 16 trading days, till the 5th January you would have been profitable 81% of the time, with an average gain of 4.4%.

Finally, another factor which can't be ignored, especially in our ‘highly institutionalised' illiquid market, is what the fund managers are going to do before 31 December. Will those that bought early cash in before year end to improve performance and bonuses? What about those managers that missed out and don't want to send out end-of-year reports showing how underweight equities, overweight cash they are - will they buy before year?

We don't know the answer but as we said earlier, there are many more factors at play this year than has historically been the case, making it very difficult indeed to pick a path into year end. As we have said on many previous occasion this has not been a text book year, so investors shouldn't rely on historical trends to determine how we might trade over the coming period.

In economic news, Australian consumer sentiment took a battering in December, with the Westpac Consumer Sentiment index falling 3.8% from November. This comes after the RBA last week raised interest rates for the third consecutive month. Also, overnight RBA Governor Stevens confirmed that bank lending margins will be considered as part of policy decisions, and neutral cash rate may be lower now. The souring consumer mood may also take some steam out of the Christmas period for retailers.

Taking a closer look at the session, materials finished the day lower by 1.3% with declines paced by falls in the heavyweight miners as BHP Billiton and Rio Tinto closed lower by 1.2% and 1.4% respectively. Gold miners saw further weakness with Newcrest Mining (-1.6%) and Lihir Gold (-2.4%) as the gold price continued its retreat from US$1200, falling to US$1130.

Interestingly, BHP Billiton this morning announced that it had sold its failed US$2.2 billion Ravensthorpe nickel mine to Canada's First Quantum for US$340. The sale is a good outcome for BHP Billiton and a disappointment for the joint bid from nickel miners Minara Resources and China's MCC. BHP Billiton had written the value of the mine down to zero is this is certainly a positive for the diversified miner.

Energy names also continued to see selling pressure as the price of crude fell below US$73/b with major names such as Woodside Petroleum, Oil Search, Caltex and Santos finished lower between 1.7% and 4.1%.

The financials sector also finished in the red, down 0.3% as the big four banks detracted significantly. ANZ was the biggest decliner, falling 1.9% while Westpac and Commonwealth Bank lost 1.1 and 0.4% respectively. On the upside, Axa Asia Pacific added 1.9% and Westfield Group rose 2.1%.

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