IG Markets - Close Of Markets August 11, 2010

IG Markets - Close Of Markets Report

Across Asia, regional markets are mixed as investors assess the likely implications and effectiveness of the Fed’s subtle plans to stimulate the US economy. The Nikkei 225 is the clearly the worst performer in the region, lower by 2.7% on persistent Yen strength, while the Kospi is also down 1.3%. Elsewhere, the Shanghai Composite is flat while the Hang Seng is 0.4% lower.

In Australia, the ASX 200 closed 1.9% weaker and right near its lows of the session. Losses for the day were broad based with the materials and financial sectors being particularly hard hit on concerns about the strength of the global recovery and the likely impact on forward earnings.

By far the biggest percentage loser of the day was the information technology sector which slumped 78%. This was nearly solely attributable to a 10.6% fall in Computershare, with the registry services business announcing a much worse-than-expected FY profit result. FY 2010 profits came in at US$294.8m, up 15% on a year ago, but well below consensus expectations of US$326m. The poor result was blamed on a much slower-than-expected pickup in corporate activity with management also warning that EPS was likely to be 5%-10% lower for FY 2011

The financial sector also saw heavy selling pressure today, to finish lower by 2.5%. After yesterday’s disappointing trading update from NAB, the market had been hoping Commonwealth Bank’s result might provide some much needed leadership and optimism for the sector. While CBA delivered a FY cash profit of $6.1b, which was in line with consensus estimates, and announced a larger FY dividend than the market had expected, its shares closed down 3% with the company providing a caution outlook.

The other major banks also saw significant losses of between 2% and 3.7%, with Westpac the largest decliner.

Even though CBA delivered a profit result in line with expectations and marginally raised its dividend, it seems the market is tired of hearing the same old cautions of “tight funding costs”, “pressures on margins” and “ongoing global uncertainty”. To meet or beat expectations is one thing, but that is a picture of the past. It seems what investors really want to hear about is optimism about the future. That has been very slow in coming!

The materials sector, which was slammed yesterday after worse-than-expected import numbers out of China, was again under widespread selling pressure with the obvious concern being falling domestic demand from China will lessen the requirement for Australian resources. On this concern BHP Billiton and Rio Tinto closed down by 1.9% and 2.1% respectively while Fortescue Metals was weaker by 2.2%. With nearly the entire sector trading lower Amcor and Alumina were notable standouts finishing 0.2% and 2.5% firmer respectively, with the latter benefitting from a slight overnight rise in the Aluminium price.

Clearly yesterday’s Chinese import data has spooked investors into lightening positions in resource stocks. While the outlook for commodity prices over the remainder of the year has generally been pretty bullish, this theme is underpinned by one factor – healthy continuing demand from China. It seems yesterday’s weak import growth number has many in the market revisiting this assumption.

China’s plethora of monthly economic data released today, which was largely in line with expectations, failed to ease the rot amongst resource stocks.

In essence though, it was a fairly bleak session with some disappointing earnings results and cautious outlooks mixing with uncertainty about the strength of the global economy to push the market lower.

Chris Weston
Institutional Dealing
IG Markets

ENDS

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