Australian shares have finally breached the 5,000 point barrier, hitting their highest point in more than four years on renewed investor confidence. After starting the week below, the benchmark S&P/ASX200 index breached the psychological line after positive earnings reports and with US stocks hitting five-year highs.
On Thursday, the Australian market posted its highest share trading in two months as investors piled back into the market. Resource stocks also started catching up with the market rally, despite weaker economic performance in the eurozone and Japan.
During a busy week of profit reports, investors digested results from companies ranging from Australia and New Zealand Banking Group (ASX:ANZ) (click links for news and market data)to Westfarmers (ASX:WES).
ANZ’s chief executive Mike Smith was more upbeat on Asia than Australia, saying the local economy was experiencing “lower growth” compared to its neighbours. The group posted a 6 per cent increase in quarterly profits, but its shares dipped due to flat revenues and interest margins.
Meanwhile, rival Commonwealth Bank of Australia (ASX:CBA) posted what analysts described as a “cracker” result, with a $3.8 billion cash profit for the half year to December 31, up 6 per cent on the previous year. Shares in the banking group hit a record following the result, making it the ninth-biggest global bank by market capitalisation.
Elsewhere, retailer and coal mine operator Westfarmers increased first half net profit after tax by 9.3 per cent to $1.2 billion, with its shares reaching a five-year high on the result. Increased earnings in its food and liquor businesses, including Coles supermarkets, helped the conglomerate outweigh poorer performance in its resources division.
Who’s hot: JBH
Despite tough competition in the consumer electronics sector, JB JB Hi-Fi (ASX:JBH) beat forecasts with a 3 per cent rise in net profit to $82 million in the half year to December 31.
The discount retailer increased gross margins and cut costs to offset higher rent and labour charges. Its shares jumped 17 per cent after the result to reach their highest level since December 2011, as short sellers were forced to cover their positions.
Who’s not: RIO
Mining giant Rio Tinto (ASX:RIO) posted the first loss in its history following US$14 billion of write-downs.
The company recorded a bottom-line loss of US$3 billion, with new chief executive, Sam Walsh, pledging a renewed focus on shareholder value after some “poor judgments” by his predecessors.
However, Deutsche Bank maintained its “buy” on the miner, on expectations that it will achieve better performance in its key iron ore division.
The week ahead
More earnings results are due next week as Australia’s company reporting season enters its peak period. BHP Billiton (ASX:BHP), Origin Energy (ASX:ORG) and Woodside Petroleum (ASX:WPL) are among those set to update the market on their performance.
In local economic news, the Reserve Bank of Australia will release the minutes from its latest monetary policy meeting where it kept interest rates steady, while car sales and wages data are all due.
Overseas, US markets are closed on Monday for the President’s Day holiday, while later in the week US jobless claims and consumer prices will be released.
In Asia, Chinese manufacturing data will be closely watched for indications of the health of the world’s second-biggest economy.
Advice for new investors: bonds
Bond markets have rallied in 2013, with Australian investors focusing on fixed-rate bonds to lock in profits amid a lower interest rate environment, according to Gavin Madson, Director – Infrastructure and Fixed Income Research at FIIG Securities.
“With the continued ‘printing of money’ being undertaken by reserve banks globally, investors are concerned that the ultimate payback for all of this cash floating around in the market will be an inflation break-out down the track, which history has shown to be a risk following such an environment,” he said.
“This has seen a real increase in interest in bonds which offer protection against inflation by linking their returns directly to the consumer price index. Capital-indexed bonds and inflation-indexed annuity bonds offer investors direct protection against inflation as their returns are linked directly to the performance of the CPI. The fact that these bonds are generally issued by solid infrastructure assets gives investors further comfort and diversity to their portfolio.”
Madson said the bond market had a solid outlook for 2013, with economic commentators including the former heads of the RBA and Future Fund urging Australian investors to increase their exposure to more defensive assets.
“We expect to see the bond market continue to perform strongly throughout the rest of the year. Gradually, we would expect some further migration in the fixed-to-floating switch as cash rates approach the bottom of the cycle – hence we’re recommending investors get in ahead of the game,” he said.
More: Weekly market update 08/02/2013
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.