Weekly stock market update 17/08/2012

Shares on the Australian and global markets have hit three-month highs on the back of optimism over Chinese and European stimulus measures.
Image: Image: Stanley Hong

Shares on the Australian and global markets have hit three-month highs on the back of optimism over Chinese and European stimulus measures. Despite softer economic data from China, Japan and Europe, investors were heartened by positive comments from the German chancellor and upbeat US technology company earnings.

In Australia, consumer staples and the banks posted gains as share buyers sought defensive businesses with dependable profits. The rally came despite Goldman Sachs downgrading earnings for around half the companies it covers, with corporate executives warning of a tough outlook.

The domestic earnings season hit full swing, with profit results from a range of closely watched blue-chip stocks.

Among them, three of the big four banks reported profits, with Commonwealth Bank of Australia (click links for news and market data) gaining the most favour from investors.

Australia and New Zealand Banking Group recorded a 5.5 per cent rise in underlying profit for the nine months to the end of June of $4.5 billion, a result considered in line with market expectations.

National Australia Bank posted flat earnings of $1.4 billion for the three months to the end of June, with a 1 per cent drop in revenue offset by lower expenses.

However, CBA stood out with a record annual cash profit of $7.1 billion, a record profit for an Australian company outside the mining sector.

Broker comment

“Generally investors seem to be getting more positive, with good results this week from Commonwealth Bank and AMP,” said Simon Condon, Private Client Adviser at Bell Potter.

“Trading activity has been average but there are signs that the mood is improving, with Europe fading a little bit more into the background.”

Ins and outs

Mirvac Group has become the latest property company to change its leadership, with international real estate executive Susan Lloyd-Hurwitz appointed as its new chief executive. Lloyd-Hurwitz will replace Nick Collishaw, who will step down in October.

Collishaw’s departure follows the recent resignation of Stockland's Matthew Quinn, and the reported departure of FKP Property Group's Peter Brown, amid tough conditions in the residential property sector.

QBE Insurance Group's chief executive Frank O’Halloran is also leaving after a 35-year stint at the general insurer. His replacement, John Neal, was formerly chief executive of its global underwriting operations.

Takeover plays

“Investors can expect more M&A [merger and acquisition] activity in the retail sector, especially among the low-priced discretionary stocks,” Bell Potter’s Condon said.

“As the resource cycle turns positive again there’s bound to be more M&A activity in this sector also.”

In current M&A activity, shares in Bluescope Steel jumped after it announced a $1.36 billion joint venture with Japan’s Nippon Steel, covering its Southeast Asian and North American businesses. The deal has slashed BlueScope’s debt and given it exposure to new markets overseas outside its mainstay building and construction sectors.

Stocks to watch

Investors seeking portfolio diversification can gain exposure using exchange traded funds (ETFs) rather than buying shares in such companies directly, according to Condon.

According to the ASX, there are more than 60 ETFs and ETCs (exchange-traded commodities) listed on the bourse, which invest in a basket of securities or other assets, offering investors diversification as well as the benefit of low management fees and being tradeable.

Condon said Bell Potter had identified a number of high dividend yield ETFs trading on the ASX which may suit investors looking for this type of exposure.

The week ahead

Australia’s reporting season will continue to attract investor attention, with Wednesday’s profit update from the “Big Australian,” BHP Billiton, likely to be the most watched.

Other companies reporting results include Bluescope Steel, CSL, Fairfax Media, Fortescue Metals, Oil Search, Qantas Airways, QR National, Woodside Petroleum and Woolworths.

In Australian economic news, the Reserve Bank of Australia will release its recent board meeting minutes, with other data due including housing affordability and skilled job vacancies.

Overseas, the United Kingdom will report second-quarter GDP, with US jobless claims and new home sales data also due along with meeting minutes from the Federal Reserve.

This week's tip

“It’s important for someone new to stock investing to seek the advice of an experienced adviser. Ask family and friends for the name of someone they trust,” Condon said.

For investors seeking an Australian-oriented guide to the sharemarket, Condon suggested reading Matthew Kidman’s recently released “Bulls, Bears and a Croupier”. An experienced fund manager and journalist, Kidman’s book offers “commonsense investing tips and is also an entertaining read, with Australian stock examples”.

Previous market update: 13/08/2012

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Anthony Fensom 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.