Industrials lead to a solid close

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.

By InvestSMART · 12 Nov 2011

By InvestSMART ·
12 Nov 2011

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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.

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Frequently Asked Questions about this Article…

How did the Australian sharemarket close and which sectors led the gains?

The Australian sharemarket closed higher, with the S&P/ASX 200 Index finishing about 1.2% up. Industrial stocks led the rally, and the session saw strong turnover that supported the solid close.

What was notable about trading turnover on the ASX during this rally?

Turnover on the day was around $5.7 billion — the highest daily figure since October 28 — signalling heavy trading activity and investor interest during the rally.

How did global events, especially in Europe, affect Australian markets?

European political turmoil — including the resignation of Italy's prime minister and changes in Greece's leadership — increased volatility and uncertainty in markets. Those sovereign concerns weighed on sentiment in Australia until stronger US jobs data and Chinese trade figures helped lift global markets.

What international data helped push markets higher that day?

Wall Street rose about 0.8% on better-than-expected US job numbers, and positive Chinese trade figures also helped improve investor sentiment, contributing to the rally.

Why were industrial stocks expected to benefit from Reserve Bank of Australia (RBA) policy?

Analysts noted that recent RBA rate cuts — and the prospect of further cuts if European turmoil persists — could stimulate the Australian economy. That potential easing cycle is seen as a possible boost for industrial companies.

What did analysts say about earnings growth among Australian companies amid current market conditions?

Wilson Asset Management equities analyst Martin Hicks said it was difficult in the current market to find many Australian companies with strong earnings growth, pointing to extreme volatility and uncertainty driven by the European headlines.

When might markets shift focus back to corporate news instead of sovereign headlines?

According to Chad Padowitz, head of international equities at Wingate Group, markets are likely to refocus on corporate news once sovereign issues calm down — meaning everyday investors should watch for a reduction in geopolitical and sovereign-market stress.

What should everyday investors monitor next given the current market backdrop?

Investors should keep an eye on sovereign and European headlines, RBA policy decisions (including any further rate cuts), major economic releases like US jobs and Chinese trade data, and company earnings updates — all of which the article highlights as key drivers of market moves.