Industrials lead to a solid close

The sharemarket closed higher yesterday, led by investments in industrial companies.

By InvestSMART · 12 Nov 2011

By InvestSMART ·
12 Nov 2011

Comments

The sharemarket closed higher yesterday, led by investments in industrial companies.

THE sharemarket closed higher yesterday on strong turnover, led by investments in industrial companies and after a rally on Wall Street that followed a plunge the night before.

It has been an extraordinary week for Europe. Italian Prime Minister Silvio Berlusconi resigned after 16 years in office as Italian bond yields showed the market believed Italy was close to becoming incapable of servicing its debt.

It was also a week in which Greece's parliament appointed a new prime minister - a former vice-president of the European Central Bank, Lucas Papademos. The yield on the Hellenic

republic's 10-year bonds is now 25.4 per cent, compared with 1.7 per cent for Germany and 2 per cent for the US.

Wall Street finished its Thursday session with a gain of 0.8 per cent on better than expected job numbers in the US and good Chinese trade figures. But compared with what had happened earlier in the week, the usual economic releases and corporate news looked almost irrelevant.

Australia's S&P/ASX 200 Index closed 1.2 per cent higher on turnover of $5.7 billion, the highest daily figure since October 28.

The head of international equities at Wingate Group, Chad Padowitz, said markets would refocus on corporate news when sovereign issues calmed down.

But Wilson Asset Management equities analyst Martin Hicks said that in the current market it was hard to find Australian companies with strong earnings growth.

''It is all about the European headlines. There is extreme volatility and uncertainty,'' he said.

However, the turmoil in Europe had created the prospect that the Reserve Bank's recent rate cut would be followed by further cuts, which would help stimulate the Australian economy and could boost industrial stocks.

''In the past, the RBA normally doesn't cut once. There is usually a series of cuts,'' Mr Hicks said.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

Why did the sharemarket close higher yesterday?

The article says the market closed higher largely because industrial companies led the gains and trading turnover was strong. A Wall Street rally after an earlier plunge also helped — Australia’s S&P/ASX 200 finished 1.2% higher on a $5.7 billion turnover, the highest daily figure since October 28.

How did industrial stocks drive the market rally?

Industrial stocks led the market’s advance. The piece notes investors were buying into industrial companies and that the prospect of further Reserve Bank rate cuts — which could stimulate the economy — might particularly boost industrial stocks.

How did European sovereign news affect Australian markets?

Extreme volatility and uncertainty from Europe weighed on markets. The article highlights Italy’s Prime Minister Silvio Berlusconi resigning after 16 years and Greece appointing Lucas Papademos as prime minister. Those sovereign concerns dominated headlines and influenced investor sentiment in Australia.

What were the relevant European bond yield figures mentioned, and why do they matter?

The article compares yields to show sovereign stress: Greece’s 10‑year bond yield was 25.4% versus 1.7% for Germany and 2% for the US. Those wide gaps signal markets worried about some countries’ ability to service debt, which contributes to global market volatility.

Did Wall Street’s performance contribute to the local market boost?

Yes. Wall Street closed up about 0.8% on better‑than‑expected US job numbers and solid Chinese trade figures, which helped underpin the rally that flowed into Australian markets.

When might markets start focusing on company news again instead of sovereign headlines?

According to Chad Padowitz, head of international equities at Wingate Group (quoted in the article), markets will refocus on corporate news once sovereign issues calm down. Until then, headlines about sovereign risk tend to dominate trading.

Are there many Australian companies with strong earnings growth right now?

The article quotes Martin Hicks, an equities analyst at Wilson Asset Management, who said it’s currently hard to find Australian companies with strong earnings growth, in part because European headlines are creating extreme volatility and uncertainty.

What does the article say about the Reserve Bank and possible future rate cuts?

The article notes the turmoil in Europe raised the prospect that the Reserve Bank’s recent rate cut could be followed by further cuts. Martin Hicks observed that historically the RBA often delivers a series of cuts rather than a single move, and additional cuts could help stimulate the Australian economy and support industrial stocks.