Another tough day on the local market yesterday – the fourth fall in a row and coming despite a growing queue of companies that want investor cash.
Could the staleness this week be an early warning message that investor interest is waning after the 12% or so run up so far in 2013 in the ASX 200?
By the close yesterday the ASX 200 had fallen by more than 113 points from last Friday’s close of 5,401.7 when the market bounced by 46 points, or around 0.8%.
Since then it has been a fall each day so far this week, with large drops on Tuesday and Wednesday.
The dollar ended down 19 points (0.4%) yesterday on the ASX 200 and in need of some sort of sentiment breaker.
So far the market if off 2.1%, which in terms of recent weeks, is a sharpish drop. It could all change today with Wall Street having a reasonable day, but a lack of momentum seems to have emerged (and that worries a lot of investors).
If the current malaise continues, getting some of those high priced floats away might become tougher.
Nine Entertainment, Dick Smith and a couple of others (most are industrial stocks and not miners or resources) will take a couple of billion dollars out of investors’ wallets before the end of the year.
There have been 73 floats on the local market this year – most (Steadfast) have done well. One of the worst was iSelect.
And then there’s the odd deal – the Virgin Australia $350 million issue (which discriminates against smaller shareholders because it doesn’t allow for rights trading), plus the $400 million selldown of Australand units by CapitaLand of Singapore. There are several smaller issues hanging around.
And quietly companies and banks have been soaking up billions through bond and other issues (The AMP has a hybrid issue going at the moment).
Even the Australian government got in on the act this week, selling a $200 million 20 year bond with a yield close to 5% and got bids for a massive $5.9 billion from potential buyers here and offshore.
Our AAA stable credit rating helps, as does the high dollar and relatively high yields.
And yet, if you look for obvious factors for the weakening investor confidence, there aren’t any – the US Fed will keep its spending going into 2014, and even if it does start slowing its outlays, it is not going to have a dramatic impact, even on those using the cash.
China’s economy is still solid – even if the early results of the November survey of Chinese manufacturing showed an easing in the pace of expansion, it was nothing important.
In fact there’s a bullish story about China following suggestions of significant changes in economic and social policy.
Chinese shares listed in Hong Kong have hit six month highs on these stories (although the reaction among mainland investors has been more muted).
In Australia, economic data remains OK – nothing dramatic or changing the current mantra of sluggish growth, rising unemployment, low inflation, a high dollar and weak demand for a range of goods, but solid demand for others.
Low interest rates and the rising market are combining to boost sentiment and the housing sector is rebounding, but the resources investment boom continues to age, as the string of earnings downgrades from the services sector confirms (WorleyParsons, Emeco, and Boart Longyear for example).
A speech last night on the history of the floating dollar from RBA Governor Glenn Stevens won’t change thinking, despite more attempts to convince the market to push the dollar’s value lower.
Not helping sentiment here has been the failure of Wall Street to move decisively above two key levels – 16,000 for the Dow and 2,000 for the S&P 500.
From Monday onwards the two breached those levels, and each time they fell back. And as the week went on, the attempts to move above them seemingly ran out of puff.
That is starting to get on the nerves of US investors and there has been a rise in media and other research wondering if the US market is running out of buying interest (the S&P 500 is up around 25% so far this year -,it was up closer to 27% on Monday).
Looking at the past year or so (our market is up close to 30% since the start of July 2012), there’s been quite a change.
ASX200 YTD – After a stellar year has our market developed the blues?
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While the banks have driven the big rise, especially this year, some of the weaker segments have also soared.
Media is one – up 60% or more in the year since November 2012, discretionary spending is up 65% and building materials have seen a 50% rise (that’s the home building boom).
In short it’s been a year for cyclical stocks, overlain by the bank boom.
Gold stocks though continue to be battered, going through numerous downgrades and price falls as the world price has dropped.
Wednesday of this week saw another small bout of instability in New York with gold trading briefly halted when the current futures price fell $US10 in a matter of seconds.
Gold ended at its lowest point since July of $1258 an ounce, then fell further in after market trading to $US1244 this morning.
Gold stocks took a pounding with the sector falling 5% yesterday.
But iron ore prices remain well above $US130 a tonne, which is a more important indicator for Australia than the gold price these days.
