The bull market may have returned for Australian shares, with the bourse clocking up 10 straight days of gains and its second-best monthly start to the year since 1994.
Gains in high yield, defensive stocks helped the benchmark S&P/ASX200 index advance by 4.9 per cent in January, a month which according to analysts often sets the tone for the rest of the year.
February also started on a positive note, with the S&P/ASX200 index moving closer to the 5000 level despite weaker than expected US economic growth and Chinese factory data. US analysts pointed to stronger private consumption and investment, while improving domestic conditions are also seen spurring further growth in China.
The sharemarket also largely ignored the Australian prime minister’s announcement of a September 14th election, with most pundits expecting victory for the business-friendly Coalition.
In Australian company news, supermarket operator Woolworths (ASX:WOW) (click links for news and market data) posted its strongest food and liquor sales growth for over a year on the back of new marketing and promotional campaigns to shoppers. While growth in same-store sales lagged that of rival Coles, owned by Westfarmers (ASX:WES), analysts said the gap may be starting to narrow.
Wesfarmers announced its second-quarter results, with retail sales rising 4.7 per cent in the three months to December 31 following stronger volumes at Coles and new Bunnings outlets. The result was in line with analyst forecasts, with the conglomerate under pressure to perform after a 26 per cent rise in its share price over 12 months.
Jonathan Teh, Private Client Adviser at Patersons, said investors were continuing to focus on dividend yields due to declining bank deposit rates.
“The top 200 has been a focus for investors, with many buying higher yield stocks through their self-managed super funds. In the more speculative smaller end of the market, liquidity has been lower and it may take another couple of months before liquidity in the larger companies flows through to the rest of the market,” he said.
Who’s hot: LNC
Shares in energy explorer Link Energy (ASX:LNC) surged after the company released estimates of its shale oil acreage in South Australia.
According to one estimate, the potential “unrisked prospective resource” could contain up to 233 billion barrels of oil equivalent, although the company was quick to downplay media reports of a $20 trillion resource.
Who’s not: PXS
Biotech Pharmaxis (ASX:PXS) saw its share price nearly halve in value after an advisory panel to the US Food and Drug Administration (FDA) gave a negative recommendation for the company’s cystic fibrosis drug, Bronchitol.
Deutsche Bank analyst David Low slapped a “sell” rating on the company after the announcement, due to the increased likelihood of rejection by the FDA and more competition due to potential delays.
Takeover plays: ASX
A change of government in September’s poll could allow sharemarket operator ASX Limited (ASX:ASX) to dust off plans for a merger with a rival stock exchange.
Treasurer Wayne Swan blocked in April 2011 the Australian market’s proposed merger with the Singapore stock exchange. However, according to the Australian Financial Review, a number of exchange deals worldwide have subsequently occurred, increasing the potential for a deal.
Stocks to watch: MML
Gold miner Medusa Mining (ASX:MML) should benefit from a stabilisation of the gold price at current high levels, according to Patersons’ Teh.
Listed on the Australian and London stock exchanges, the Philippines-focused company aims to become a mid-tier, low cost gold producer targeting 400,000 ounces a year of gold.
The week ahead
The start of Australia’s company earnings season will see a number of reports released, including from heavyweights Telstra Corporation (ASX:TLS) and Tabcorp (ASX:TAH).
Market watchers will also keep a close eye on the outcome of the Reserve Bank’s first monetary policy meeting of the year on Tuesday, with many expecting the official cash rate to remain at 3 per cent.
Overseas, the European Central Bank and Bank of England will also hold policy meetings, while US factory orders and jobless claims data is due.
Advice for new investors
Investors buying stocks based on their historical dividend yields should examine their potential for future profits growth, according to Patersons’ Teh.
“When the Reserve Bank cuts interest rates, it implies the economy isn’t doing as well, and therefore company profits may decline over time. However, companies generally don’t like lowering their dividend payments so this will probably be a lagged effect,” he said.
Previous market update: 25/01/2013
For regular updates, Like BigPond Money on Facebook.
A former ASX employee, Anthony Fensom has spent nearly 15 years in the financial/media industries of Australia and Asia. Having been through the dot.com boom and bust, the resources boom and the GFC, he is a great believer in patient investing and in understanding market and economic cycles.