Ignore the rebound in markets (as I wrote yesterday) and focus on the underlying message from China’s surprise rate cut.
But first, let’s pause for a ’sugar hit’ from the successful float of Medibank Private later today – I doubt it will have the same impact as the Chinese rate cut.
And that’s backed up by weak trading overnight on the futures market – our market could be flat to slightly lower after a dull day on Wall Street.
The ASX 200 Index and the broader All Ordinaries Index each added 1.1% yesterday, to 5361.8 points and 5349 points respectively.
The rebound last week’s slide which wiped out the gain 2014’s tiny gains.
Markets in Hong Kong and Shanghai rose strongly – both up around 2%.
Despite those gains, the stark reality is that yesterday’s rebound was based on the hope that China’s rate cut will ‘save’ the slowing economy which is in trouble and needs a helping hand.
It won’t, it will merely give the economy time to adjust to the slower pace of growth expected in the next year with GDP rising around 7%, at best, perhaps less.
Pumping over $US250 billion of loans and other help to banks and others didn’t work, – China’s economy has continues to drift lower.
So a sugar hit via a shock rate cut was needed to focus minds and direct attention away from the sluggish economy and weakening property sector in particular.
But that was ignored by investors large and small here yesterday.
After weeks of being ponded by the bears, the bulls emerged to play and they were having the day in the sun.
And that’s what they did.
But they should be have noted the way commodity prices surged, then retraced last Friday in European and US trading.
That tells us there’s little confidence there this rate will make any difference in the short term.
It is aimed at helping the economy in 2015, and especially the declining property and housing sectors.
But first we have to get through the impact of the Medibank listing later today.
The federal government raised $5.68 billion from the Medibank Private sell off.
The government sold about 2.7 billion shares in the nation’s biggest health insurer at $2.15 apiece for institutional investors and $2 for individuals.
But investors will want more (they are underweight), so they will chase the shares, triggering a flood of ’stagging’ sales by retail investors.
The sale price values Medibank at 22.9 times estimated earnings for the June 2015 financial year, which is very expensive, compared to NIB Holdings, the only other listed health insurer, with a price to earnings ratio of 19.3 times.
Even that is expensive given the lower P/E for the wider market.
But it’s all fruit on the sideboard for investors looking for some good news.
Naturally, mining was the best-performing sector in the ASX yesterday, rising 3.3%.
Rio Tinto shares jumped 3.4% to $58.30, Fortescue Metals jumped 10.8% to $2.98 – its biggest daily rise in more than two years. It was up 12.6% investors were caught short and needed to cover their positions or close them out.
ALS Ltd, the big testing group, was the best performer on the ASX 200 – its shares jumped more than 17% after reporting a slightly better interim profit, but slashing interim dividend from 19 to 11 cents.
Westpac shares rose 0.8% to $32.50, shares in the Commonwealth Bank, National Australia Bank each rose 0.4% to $80.42 and $32.40 respectively, and ANZ Bank shares edged up 0.2% to $31.8.
Woolworths lost 0.6% to $31.41, while Wesfarmers shares jumped 1.9% to $42.35.
