China data, positive leads add impetus

THE sharemarket benchmark jumped back above the 4100-point level yesterday on news late last week that China's economy grew in the June quarter at the rate economists expected.

By InvestSMART · 17 Jul 2012

By InvestSMART ·
17 Jul 2012

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THE sharemarket benchmark jumped back above the 4100-point level yesterday on news late last week that China's economy grew in the June quarter at the rate economists expected.

Positive leads from the US (up 1.6 per cent) and London (up 1 per cent), where investors also welcomed the news, sent the market sharply higher at the start of the session.

At one stage the key index was up 44 points. However, by the close that gain was almost exactly halved after China's Premier Wen Jiabao warned that economic recovery for his country was not a fait accompli.

The response from shareholders to his comments added weight to analysts' arguments that the global sharemarket rally sparked by China's economic growth slowing by "only" half a percentage point was built on relief more than anything.

Overall, the S&P/ASX 200 Index rose 22.9 points, or 0.56 per cent, to 4105.1.

The gains were broad-based, with energy shares leading the market higher, adding 1.2 per cent. Materials put on 1 per cent and financials rose 0.4 per cent.

Only the telcos sector closed lower, off 0.3 per cent.

Analysts said the rally was welcomed but lacked a little legitimacy. Trading was still extremely light just $2.8 billion worth of shares changed hands with 12 of the top 200 stocks "unchanged".

"Given the market's advance from midday Friday was predicated on 'less-bad news', as opposed to 'legitimate good news', it certainly feels like there are still plenty of would-be sellers out there," said IG Markets analyst Cameron Peacock.

The stand-out performer was Whitehaven Coal, whose shares surged nearly 18 per cent, climbing to $4.07, up from $3.45 on Friday. The surge was large enough to make it a bigger contributor to the overall market's advance than Rio Tinto.

Commonwealth Bank hit its highest intraday price in 17 months, touching $54.29, before easing to end the day higher at $54.06.

Westpac gained 11?, at $22.16, after it said it would raise $500 million through the issue of subordinated notes.

Seven West Media was placed in a trading halt, at $1.62 a share, after the company looked to shareholders to raise $440 million to help reduce its debt.

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Frequently Asked Questions about this Article…

Why did the ASX 200 jump back above the 4100 level?

The S&P/ASX 200 rose after late-week news that China’s economy grew in the June quarter at the rate economists expected, combined with positive leads from the US (up 1.6%) and London (up 1%). The index climbed 22.9 points (0.56%) to 4,105.1 on the day.

How did China’s economic data and Premier Wen Jiabao’s comments affect Australian markets?

China’s better‑than‑feared GDP print initially lifted markets, but Premier Wen Jiabao’s warning that China’s recovery was “not a fait accompli” trimmed gains. Analysts said the rally looked driven more by relief than by strong, sustained good news.

Which sectors led gains on the ASX and which sector fell?

Gains were broad-based: energy led the market higher (+1.2%), materials rose about 1%, and financials were up 0.4%. Only the telcos sector closed lower, down about 0.3%.

Was trading activity heavy during the rally and why does trading volume matter?

Trading was relatively light — about $2.8 billion of shares changed hands and 12 of the top 200 stocks were unchanged. Analysts noted light volume can mean a rally lacks robustness, because moves on low liquidity may not hold when selling pressure returns.

What caused Whitehaven Coal to be a standout performer, and how big was the move?

Whitehaven Coal surged nearly 18%, rising to $4.07 from $3.45 on Friday. The jump was large enough that Whitehaven contributed more to the market’s advance that day than even Rio Tinto.

How did the big banks perform—what happened with Commonwealth Bank and Westpac?

Commonwealth Bank hit its highest intraday price in 17 months, touching $54.29 before settling at $54.06. Westpac traded at $22.16 after announcing plans to raise $500 million via subordinated notes.

Why was Seven West Media placed in a trading halt and what are the company’s plans?

Seven West Media was placed in a trading halt at $1.62 as it sought shareholder support to raise about $440 million to help reduce its debt.

Should everyday investors view this kind of rally as a clear buy signal?

Analysts in the article cautioned that this rally was driven more by ‘less‑bad’ news than clear positive fundamentals and occurred on light trading volume. That suggests everyday investors should be cautious, consider market liquidity and fundamentals, and weigh whether gains are sustainable before making decisions.