Index up as companies bring home bacon

Australia's biggest companies began to open their books to investors this week.

Australia's biggest companies began to open their books to investors this week.

AUSTRALIA'S biggest companies began to open their books to investors this week, for their annual profit unveiling.

Telstra, Cochlear, Leighton Holdings and Crown were among those to do so. Rio Tinto opened its half-yearly books.

So far investors have responded well, with the S&P/ASX 200 Index this week gaining 55.82 points, or

1.3 per cent, to 4277.3.

It helped that local economic data, such as Thursday's decline in unemployment, has been positive.

But shareholders have been cautioned for weeks now to keep their hopes for positive surprises this season fastened to the ground. If anything, they have been advised to prepare for bad news.

This time last year, when investors reacted brutally to unexpected profit declines by wiping 6.5 per cent from the market, companies learnt that too-high and unreal expectations can be a bad thing.

So this time around, if there have been pre-announcements of likely profits, those warnings have been of profit downgrades, not upgrades.

Thus, when Rio Tinto reported a decline in half-year earnings on Wednesday night (after the market closed) - a fall of 22 per cent to $US5.89 billion for the first six months of the year, due to a slump in global commodity prices - the market took it in its stride.

For the week, Rio shares are up $4.44, or 7.8 per cent, at $56.45.

Behind it all, some analysts have pointed out that the sharemarket has risen on 13 out of the past 21 days, leading to questions about the likelihood of a longer and more sustained rally.

Some have wondered whether the recent rally really is a sign that things have improved.

Deutsche Bank's Tim Baker says the recent rally is atypical and should be treated with caution. His reason? Banks and defensive stocks have been the key drivers, while cyclical industrial and resource stocks have done little.

As he noted last week: "The lack of interest in cyclicals does not inspire much confidence in the durability of the upturn, and is reminiscent of the March/April rally which ultimately faltered. If the market is to continue its recent momentum, cyclicals have to contribute. [But] this seems unlikely to occur in the very near term."

Yesterday, Tabcorp slumped a further 9 per cent, to $2.91, after five analysts downgraded the stock despite a solid full-year result on Thursday.

For the week, Transurban lost 30? to $5.69 after it said it was considering the future of one of its roads in the US, after a drop in its value halved full-year net profit.

Cochlear fell $1.85 to $62.90 after its full-year profit plunged 68 per cent following a costly recall of a bionic ear implant.

Leighton rose $1.11, at $17.11. The construction company expects profit to increase threefold in the second half of 2012 after the completion of its troubled Brisbane Airport Link and Victorian desalination project.

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