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Investors push shares into bull market territory

30 Jan 2013 THE AGE - GLENDA KWEK WITH AGENCIES


OPTIMISM about a recovery in the global economy has seen the Australian sharemarket close higher for the ninth-straight day, despite insurers losing ground in the wake of storms and floods on the east coast.

The ASX 200 finished on Tuesday 1.1 per cent higher at 4889 points. It was its highest close since April 2011, with the big four banks all registering strong gains while defensive stocks such as Telstra hit multi-year highs.

The market is up more than 20 per cent since early June, entering what has traditionally been defined as "bull market" territory. The leading S&P 500 index on Wall Street was around 17 per cent higher for the same period. Positive sentiment about improving economic data from the US and China, as well as the lifting of black clouds over Europe, also spread to business confidence, with the National Australia Bank's monthly business survey released on Tuesday showing a sharp increase in the index for December.

At the same time, expectations of a Reserve Bank interest rate cut in February fell to 26 per cent, Credit Suisse data showed. Markets priced in a cut in the cash rate by 25 basis points for the year, and a 60 per cent chance of a second rate cut.

"Relative to six months ago, there has been quite a significant drop in the risks facing the global economy," said UBS's chief economist for Australia, Scott Haslem, adding that the moderate economic outlook for 2013 had benefited for the removal of some "tail risks".

"We'll never be without risk, but some of those tail risks around the longevity of the European project and the potential for the US to go over the fiscal cliff have certainly been diminished."

Last week, the International Monetary Fund expressed cautious optimism in its outlook for the global economy this year, trimming its projected gross domestic product annual growth to 3.5 per cent amid continued weakness in the eurozone.

A greater appetite for risk has seen also bond prices fall globally, as news emerged that European banks were set to repay more than €130 billion of long-term loans to the European Central Bank. Some strategists have forecast a move out of bonds into stocks this year.

Westpac senior market strategist Damien McColough said within a "risk on" theme where global growth was expected to be stronger, bonds would be very expensive. He said the global market rallies were a reflection of the reduction in risks rather than confidence in growth.

"It's really a removal about the real catastrophe or disaster premium that has been in market rates for some time. As opposed to confidence that the [global economies] are growing strongly, it's more a confident belief that the worst-case scenario has been averted," Mr McColough said. "So that causes equities to remove some of the negatives and bonds to lose some of their expensive pricing."

The director of research at Bell Potter Securities, Peter Quinton, said while stocks were trading in bull market territory, applying such a definition at this time was "a little bit aggressive" for the Australian market.

"But having said that, I think there are very solid fundamental underpinnings to those 20 per cent risings," Mr Quinton said. "The brutal reality is . . . there's still risks out there. But anybody who has been bearish about the stockmarket for the past six months has been proved dramatically wrong."

Among the major banks on Tuesday, Westpac rose 67¢ to $28.22, Commonwealth Bank lifted $1.14 to $64.73, National Australia Bank found 48¢ at $27.72, and ANZ advanced 44¢ to $26.51.

Some insurance stocks fell as they began to feel the pain from ex-tropical cyclone Oswald, with more than 10,000 claims lodged and the damage bill set to rise above $100 million. Suncorp lost 21¢ to $10.70 as it said it had so far received about 4500 claims and expects more to come. Insurance Australia Group nudged up 1¢ to $4.93, and QBE dropped 31¢ to $11.28.

In the resources sector, BHP Billiton improved 7¢ to $37.17, and Rio Tinto firmed 9¢ to $66.15.