After reaching its highest level in more than four years, Australian shares suffered a correction as the market’s bulls took a breather. Thursday’s dive marked the biggest single-day fall in nine months on global economic worries, but the market was back above the 5,000 line on Friday as investors chased bargains.
Reports that the US Federal Reserve was considering an early end to its bond buying sparked fears over the future of quantitative easing. In China, a warning from Beijing that it planned to “decisively” curb real estate speculation hit commodity prices and Australian miners.
However, on Friday, Reserve Bank of Australia governor Glenn Stevens gave investors some reassurance, saying that there was “a good deal of interest rate stimulus in the pipeline”. He pointed to higher house and stock prices as evidence of the effects of past interest rate cuts, with savers being encouraged to pursue higher risk assets.
In company news, another busy week of earnings reports was highlighted by another change at the top of a leading mining company. This time, BHP Billiton (ASX:BHP) (click links for news and market data) announced a leadership change following an earnings fall, adding to the recent changing of the guard at rival miners Rio Tinto (ASX:RIO) and Anglo American.
Overall however, improved investor sentiment had spurred increased trading activity, according to Tom Crommelin, Client Adviser at RBS Morgans.
“A lot of cash has come off the sidelines and into the sharemarket, which is showing a positive trend upwards despite Thursday’s pullback,” he said.
“Volumes have been a lot higher at around $5.7 billion worth of shares traded a day, which is returning to pre-GFC levels.”
Who’s hot: CDD
Engineering and construction group Cardno (ASX:CDD) impressed investors with its interim net profit of $40.1 million, up 11 per cent on the previous half and ahead of market expectations.
The company has achieved revenue and profit growth every year since its listing in 2004, and despite recent acquisitions has maintained a strong balance sheet with low gearing.
While it said conditions in the second half of 2013 would remain challenging, signs of improvement in the United States along with potential further acquisitions could swell profits.
Who’s not: ORG
Shares in Origin Energy (ASX:ORG) dived after it posted a 26 per cent fall in first-half underlying profit to $362 million, and cut its full-year earnings guidance for the second time in three months.
Chairman Kevin McCann noted “challenging operating conditions,” with the company suffering difficulties in its core energy markets business.
Both Moody’s and Standard & Poor’s cut their credit ratings on Origin following the result, with concerns over increasing costs at its $25 billion liquefied natural gas project planned for Gladstone.
Takeover plays: MYS
Launceston-based financial services group MyState Limited (ASX:MYS) has seen its share price climb in recent months amid speculation that a larger rival may be eyeing it.
MyState operates MyState Financial and Tasmanian Perpetual Trustees, while also being exposed to Queensland through its December 2011 merger with The Rock Building Society.
“MyState is the second-largest bank in Tasmania behind the Commonwealth Bank and has a well-regarded management team, so in my opinion it wouldn’t be a surprise if one of the big banks takes a look at them,” RBS Morgans’ Crommelin said.
Stocks to watch: APE
Founded in 1913, automotive retail group A.P. Eagers (ASX:APE) has enjoyed consistent profit growth and is expected to report another record profit on February 27.
According to the company’s recent market guidance, it expects to post a 27 per cent increase in underlying profit to $78.4 million. The company also expects to set a new sales record in 2013, with further gains eyed from the monetisation of its $337 million property portfolio.
The week ahead
Australia’s company earnings season will wind down with a raft of results, including from Flight Centre (ASX:FLT), Harvey Norman (ASX:HVN), QBE Insurance (ASX:QBE) and Woolworths (ASX:WOW).
Local economic news due out includes balance of payments, capital expenditure and housing data, in addition to manufacturing performance.
Overseas, fourth-quarter gross domestic product data from the United States and China will be closely watched as a reading of the health of the world’s biggest two economies.
Elsewhere, Japan will report industrial production and retail trade, while eurozone economic and consumer confidence data is also due.
Advice for new investors
“In my opinion, those investors sitting on cash should be considering entering the market over the next few weeks or months. However, they should mainly consider quality companies with strong balance sheets, good management and solid earnings, including those that pay dividends,” RBS Morgans’ Crommelin said.
More: Weekly market update 15/02/2013
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.