A tough day on Australian markets yesterday that was, in the end, at variance with a firmer tone from Asia in the afternoon.
The sell down was more linked to renewed worries about banks, other financials, property and other geared investments, and a general concern about resources.
And overnight commodities dropped again, led by oil. Most metals and grains fell sharply except aluminium which hit a record in London because of power problems in northern China.Oil fell $US4 a barrel to just over $US141 a barrel. Wall Street was easier.
Rather than the sort of blind sell-down we saw last month and earlier in the year, yesterday’s activity was a repeat of the shaker last Thursday when concerns about resource stock valuations surfaced and were translated into lower share values.
BHP, Rio and a host of resource related stocks were weaker then and yesterday. There will be a lot of nervy people watching price movements on the commodity exchanges of London, New York and Chicago overnight, and for the next few days.
BHP Billiton fell 2.33%, or 95c, to $39.75 and Rio Tinto lost 1.95%, or $2.45, to $123.25. Fortescue Metals, which fell 4.1%, or 40c, to $9.36; Newcrest Mining shed 5.54%, or $1.66, to $28.32, and Woodside Petroleum lost 2.7%, or $1.65, to $60.10.
If commodity prices continue weakening (and some, like nickel, lead and zinc have already fallen substantially in recent weeks) then a lot of ideas about the sturdiness of our market will have to be put aside.
The usual market rotation in the past couple of years has been: when banks are weak, sell them and move into resources, when resources loose their allure, it’s out of them and into either banks and financials or consumer linked stocks.
With banks again weak, some investors re-discovered consumer stocks.
So Woolworths had a strong day yesterday as investors moved out of resource stocks. Woolworths closed 2.7%, or 63c, higher, at $24.03, but Wesfarmers dipped 12c to $34.25. Shopping centre owner Westfield closed 0.8% higher, or 13c, at $16.23. Wesfarmers has the problem of its very profitable coal business to discourage investors. That outweighs the attractions of owning Coles and Bunnings.
But as yesterday reminded us, banks and financials are not the healthiest of sectors: fear and loathing dominate rather than cool-headed judgement.
The long waited earnings downgrade from GPT will have convinced a few investors that there’s worse on the way for the leveraged stapled security sectors of property and infrastructure.
These groups looking to continue deals had better heed the reasons why GPT cut its earnings and distribution estimates by 30%:
GPT said in its 20 page statement that the continuing deterioration of global financial, credit and property markets was having a marked impact on real estate companies, and difficult operating conditions are expected for the rest of 2008.
GPT said it will now retain development profits for reinvestment instead of distributing them to shareholders.
GPT will distribute about 90% to 100% of all other operating income depending on the composition of the earnings and capital management strategies at the time.
”We believe that this updated guidance is appropriate at this half-way mark of the financial year, owing to a persistently challenging operating environment. We expect difficult conditions to continue for at least the second half of this calendar year,” the company said.
Its the same attitude that Transurban adopted last year except that TCL recapitalised by putting in place steps to raise $1 billion in fresh capital over the next year; with more than half of that raised from a placement to a big existing Canadian pension fund shareholder.
As a result the likes of Stockland fell 35c or 5.8% to $5.17 after touching a 52 week low of $5.05 during trading. Valad Property Group fell 1.5c to 62.5c, Lend Lease Corp dropped 40c to $9.60 while Mirvac Group fell 10c to $2.75.
The bank sector was also dragged down with the Commonwealth, which fell 2.1%, or 88c, to $41.45, the NAB fell 1.7%, or 47c, to $27.07, the ANZ fell 1.64%, or 32c, to $19.20 and Westpac lost 1.5%, or 30c, to $20.00. St George fell 49c to $26.28.
