Chinese rescue mission lifts resources

THE sharemarket snapped a three-day losing streak yesterday after the Chinese central bank's announcement of a cash injection into money markets helped push resource stocks up.

By InvestSMART · 28 Sep 2012

By InvestSMART ·
28 Sep 2012

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THE sharemarket snapped a three-day losing streak yesterday after the Chinese central bank's announcement of a cash injection into money markets helped push resource stocks up.

The market had been tracking about 0.6 per cent lower during the day until news came out around midday that the People's Bank of China would pump 365 billion yuan ($A56 billion) into money markets to maintain banks' liquidity.

The benchmark S&P/ASX 200 rose 22.6 points, or 0.5 per cent, to 4384.2.

Goldminers led the charge, adding 1.3 per cent, while materials and health jumped 1.1 per cent. CSL was the star of the healthcare sector, hitting a record high of $45.98.

Financial stocks finished 0.5 per cent higher and energy rose 0.3 per cent. Consumer discretionary and consumer staples bucked the trend, falling 0.3 and 0.2 per cent respectively.

China's capital injection helped investors shrug off news of a fresh breakout of European debt fears, after eurozone creditors made it known that Spain's banks would be burdened with higher debts if a planned ?100 billion bailout went ahead.

Spanish 10-year bond yields pushed back above 6 per cent overnight, wiping 2.7 per cent in value from Europe's equity market.

St George economist Janu Chan said Spanish Prime Minister Mariano Rajoy faced growing pressure to ask for a bailout from European authorities, particularly as Spanish anti-austerity protests intensified.

"Concerns about the situation in Spain have driven 10-year bond yields above 6 per cent, rising 32 basis points, further placing pressure on Spain to ask for a bailout," Ms Chan said.

"There's a lot of anger from the public about the austerity measures that have been put in place."

After the news from China, Australia's largest company, BHP Billiton, rose 21?, or 0.64 per cent, to $33.02. It represents more than a fifth of resource stocks by market capitalisation and helped drag the market up.

Fellow resource stocks also improved, with Rio Tinto up 70? at $53.59, and Fortescue Metals 1? higher at $3.52.

Echo Entertainment rose 4? to $3.79 after the group denied it was in turmoil when chief executive Larry Mullin quit, amid concerns about the casino operator's balance sheet.

Metcash slipped 8? to $3.57, after the grocery wholesaler said it expected to name a new chief executive in February, with Andrew Reitzer confirming he will resign at the end of June next year but will remain as a consultant for three years.

Woolworths dropped 27? to $29.01 after it announced the sale of its Dick Smith Electronics chain to a private equity firm for $20 million.

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Frequently Asked Questions about this Article…

How did the People's Bank of China cash injection affect the ASX and resource stocks?

The People's Bank of China announced a 365 billion yuan (about A$56 billion) injection into money markets, which helped reverse a three-day slide in Australian shares. The benchmark S&P/ASX 200 rose 22.6 points, or 0.5%, to 4,384.2 as resource stocks rallied following the liquidity boost.

Which ASX sectors led gains after China's liquidity move?

Gold miners led the charge, adding about 1.3%, while the materials and health sectors jumped roughly 1.1%. Financial stocks and energy also finished higher, while consumer discretionary and consumer staples edged lower.

What happened to major resource companies like BHP Billiton, Rio Tinto and Fortescue after the announcement?

Australia's largest company, BHP Billiton, rose to $33.02 and helped lift the market (it makes up more than a fifth of resource stocks by market capitalisation). Rio Tinto and Fortescue Metals also improved, with Rio Tinto at $53.59 and Fortescue at $3.52.

How did CSL perform on the day and what was notable about its share price?

CSL was the standout in the healthcare sector, hitting a record high of $45.98 as health stocks joined the broader market rally after the Chinese liquidity news.

Did European debt worries affect Australian markets that day?

Investors largely shrugged off fresh European debt concerns after the Chinese announcement. The article notes that Spanish 10-year bond yields had pushed back above 6%, which knocked about 2.7% off Europe's equity market, but the Chinese liquidity move helped Australian markets stay positive.

What corporate news moved individual Australian shares like Echo Entertainment, Metcash and Woolworths?

Echo Entertainment rose to $3.79 after denying turmoil following CEO Larry Mullin's resignation. Metcash slipped to $3.57 after announcing it expects to name a new chief executive in February and that Andrew Reitzer will resign at the end of June but remain a consultant. Woolworths dropped to $29.01 after announcing the sale of its Dick Smith Electronics chain to a private equity firm for $20 million.

Why did analysts say Spain might need a bailout and how did that relate to market moves?

St George economist Janu Chan said rising Spanish 10-year bond yields (above 6%) and intensifying anti-austerity protests were increasing pressure on Prime Minister Mariano Rajoy to seek a bailout from European authorities. Those concerns weighed on European markets even as Chinese liquidity helped Australian stocks recover.

What key takeaway should everyday investors note from the market reaction to China's liquidity injection?

The main takeaway is that major central bank liquidity actions—like the People's Bank of China's 365 billion yuan injection—can quickly boost risk appetite and lift resource-heavy markets such as the ASX, even when other regions face debt worries. Watch both macro policy moves and sector composition when assessing market reactions.