Good news in Europe and China whets investors' risk appetite

DOMESTIC shares broke a three-day losing streak to add 1 per cent in the first day of trading in 2012 after positive leads from European bourses.

By InvestSMART · 4 Jan 2012

By InvestSMART ·
4 Jan 2012

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DOMESTIC shares broke a three-day losing streak to add 1 per cent in the first day of trading in 2012 after positive leads from European bourses.

Shares posted gains across the market, on low volumes, after better-than-expected German manufacturing data helped European markets spread more holiday cheer.

Positive manufacturing data in China at the weekend also helped to boost the appetite for risk, helping resources and energy stocks.

An adviser at Burrell Stockbroking, Jamie Elgar, said the market was still poised for a rebound when European leaders had come up with a concrete answer to the debt crisis.

"I expect that in the first quarter, or the first half, we could see some new lows but we will end this year higher," Mr Elgar said. "If something does happen [to resolve the debt crisis] I think the market has the propensity to see a bit of a bounce."

At the close yesterday, the benchmark S&P/ASX200 index was up by 44.6 points, or 1.1 per cent, at 4101.2. The broader All Ordinaries index was up by 44.2 points, also 1.1 per cent, at 4155.2.

Materials led the pack higher, adding 1.6 per cent after commodity prices benefited from an overnight upswing in risk appetite. BHP Billiton rose 1.1 per cent to $34.80 and Rio Tinto rose 1.8 per cent to $61.40.

Shares in Gloucester Coal rose by 1.2 per cent to $8.70 following reports that it will wait until Yanzhou Coal Mining Co completes inspecting its books before deciding whether or not to recommend the company's $2 billion takeover offer.

Industrials got a boost from Australian Industry Group and PricewaterhouseCoopers' data showing the manufacturing sector moved into positive figures in December. OneSteel closed 1.4 per cent higher at 71? and BlueScope Steel rose 1.2 per cent to 41?.

The big four banks also benefited from the improvement in sentiment, gaining between 0.7 per cent and 1.7 per cent on the day.

However, brokers noted that volumes were thin and much of the "smart money" - slang for institutional investors - were staying on the sidelines. On the exchange, 828 million shares were traded at a value of $1.8 billion.

Investors would be wary about the outcome of the next round of talks in Brussels and the prospect billions of euros of debt being rolled into the next quarter.

"It will not really be until mid-January at the earliest, as market players and money managers return from their holidays, that we will be able to garner a real assessment of the market's mood," an IG Markets' market analyst, Cameron Peacock, said.

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Frequently Asked Questions about this Article…

What pushed Australian shares higher on the first trading day of 2012?

Australian shares rose after positive leads from European bourses — notably better-than-expected German manufacturing data — and upbeat manufacturing data out of China. Those signals boosted risk appetite and helped lift resources, energy and materials stocks.

How did the main Australian indices perform during the rally?

The benchmark S&P/ASX 200 gained 44.6 points (about 1.1%) to finish at 4101.2, while the broader All Ordinaries was up 44.2 points (1.1%) at 4155.2 on the trading day described in the article.

Which sectors and companies led the gains, and how did they move?

Materials led the market higher, up about 1.6% after a rise in commodity prices. BHP Billiton rose 1.1% to $34.80 and Rio Tinto gained 1.8% to $61.40. Gloucester Coal climbed 1.2% to $8.70. Industrials also improved with OneSteel up 1.4% and BlueScope Steel up 1.2%, and the big four banks gained between about 0.7% and 1.7%.

What’s the latest on the Gloucester Coal takeover offer mentioned in the article?

Gloucester Coal said it will wait until Yanzhou Coal Mining Co completes inspecting its books before deciding whether to recommend the reported $2 billion takeover offer, prompting a modest share rise on the news.

Were trading volumes strong during the rally, and does that matter for investors?

No — volumes were thin even though prices rose. The exchange traded about 828 million shares worth roughly $1.8 billion, and brokers noted much of the "smart money" (institutional investors) was staying on the sidelines. Thin volumes can mean rallies are less reliable until broader participation returns.

How does the European debt crisis factor into market risks and investor sentiment?

Investors were cautious ahead of the next round of Brussels talks on the debt crisis. Analysts quoted in the article said the market is poised to rebound if European leaders reach a concrete solution, but uncertainty around debt rollovers could still push markets lower in the short term.

When will there likely be a clearer read on market sentiment, according to analysts?

An IG Markets analyst said a real assessment of market mood is unlikely until mid-January at the earliest, when market players and money managers return from holidays — so watch for clearer direction then.

What should everyday investors watch following the market moves described in the article?

Based on the article, everyday investors should monitor upcoming European talks on the debt crisis, key manufacturing data from Germany and China, commodity price trends that affect materials stocks, and trading volumes (to see if institutional investors re-enter). Those factors were driving sentiment and price moves in the coverage.