Market's five-week run hits the wall

THE sharemarket closed lower yesterday, ending a run of five weeks of gains amid fears the mining boom might have ended and as hopes for quick monetary stimulus in the US faded.

By InvestSMART · 25 Aug 2012

By InvestSMART ·
25 Aug 2012

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THE sharemarket closed lower yesterday, ending a run of five weeks of gains amid fears the mining boom might have ended and as hopes for quick monetary stimulus in the US faded.

The benchmark S&P/ASX 200 Index fell 34.7 points, or 0.8 per cent, to 4349, for a loss of 0.2 per cent over the week.

Among the big sectors, materials lost 1.4 per cent, consumer staples 1.4 per cent, energy 1 per cent and financials 0.6 per cent. The telcos index was the only sub-index to gain, rising 0.4 per cent on the day.

Questions over whether the decade-long bull run in commodities has ended have become louder in recent weeks as data shows China heading for the slowest annual growth in more than a decade, driving down copper, iron ore and other raw materials.

Reserve Bank chief Glenn Stevens said it was too soon to call an end to the mining boom, intensifying debate over the outlook for the resource-rich economy as miners, including BHP, shelve expansion plans and takeover deals.

"Miners are being weighed down by the fact that iron ore prices are dropping," said Damien Boey, equity strategist at Credit Suisse.

Iron ore prices dropped 5 per cent on Thursday to $US 99.60, below the $US100 mark for the first time since 2009.

Mr Boey said the banking sector was also hit amid concern about the robustness of the Australian economy, given fallen commodity prices and expenditure cutting by mining companies.

"This isn't a good thing for employment and if it's not a good thing for employment, it's not a good thing for potentially bad debts," Mr Boey said.

"So people are a little bit concerned now that both these sectors are kind of taking related risks from China's slowdown."

Yesterday ended the busiest week of the earnings season with Woolworths announcing a net profit of $1.82 billion, down 14.5 per cent. Its shares fell 48?, 1.7 per cent to $29.

Fairfax shares took another bath, dropping 11 per cent to a record low of 45.5? after Gina Rinehart tried unsuccessfully to sell a third of her 15 per cent stake in the media company at 50? a share.

Its stock slumped 10 per cent on Thursday when it reported a $2.73 billion full-year net loss.

Coalminer Whitehaven posted improved net profit of $62.5 million for the year but its shares dropped 11.2 per cent to $3.09 after magnate Nathan Tinkler shelved a $5.2 billion takeover bid.

Elsewhere, resource stocks dragged the market lower.

BHP Billiton dropped 32? to $33.09 and Rio Tinto lost $2.38, or 4.4 per cent, to $51.80. Fortescue Metals suffered heavy losses following a downgrade by broker Nomura, losing 26?, or more than 6 per cent, to $3.98.

The big banks were down but not by as much, with Commonwealth Bank falling 24? to $54.90, ANZ 23? off at $24.77, Westpac losing 12? to $24.65 and National Australia Bank falling 17? to $25.14.

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Frequently Asked Questions about this Article…

Why did the ASX 200 close lower and end its five-week winning streak?

The S&P/ASX 200 fell 34.7 points to 4,349 (a weekly loss of about 0.2%) as investor fears grew that the mining boom may be cooling and hopes for quick US monetary stimulus faded. Slumping commodity prices and weaker economic signals from China weighed on resource stocks, and several sectors fell on the day.

How did falling commodity prices — especially iron ore — affect Australian miners and the market?

Iron ore dropped about 5% to US$99.60, slipping below US$100 for the first time since 2009. That decline pushed miners to shelve expansion plans and takeover activity, and pushed resource stocks lower. Analysts in the article said falling commodity prices are hurting miners’ profits and raising concerns about employment and downstream effects on the broader economy.

What did the Reserve Bank and market strategists say about whether the mining boom is over?

Reserve Bank chief Glenn Stevens said it’s too soon to call an end to the mining boom, but debate has intensified. Credit Suisse strategist Damien Boey noted miners are being weighed down by dropping iron ore prices and warned the slowdown could hurt employment and increase risks for banks, so the outlook remains uncertain.

How did major miners like BHP, Rio Tinto and Fortescue perform during the sell-off?

Resource stocks dragged the market lower: BHP Billiton fell to about $33.09, Rio Tinto lost $2.38 (about 4.4%) to $51.80, and Fortescue Metals suffered heavy losses after a broker downgrade, falling to roughly $3.98 (more than a 6% drop).

How were the big Australian banks affected by the market fall?

The big banks were down but not as heavily as resource stocks. Reported prices included Commonwealth Bank around $54.90, ANZ about $24.77, Westpac near $24.65 and National Australia Bank roughly $25.14. Analysts in the article linked bank concerns to the potential economic impact of lower commodity prices.

What notable company results and share reactions occurred during the busiest week of earnings season?

Woolworths announced a net profit of $1.82 billion, down 14.5%, and its shares fell to about $29. Fairfax’s stock plunged — dropping double digits to a record low after a failed large-stake sale and a prior $2.73 billion full‑year net loss. Coal miner Whitehaven reported improved net profit of $62.5 million but its shares fell to about $3.09 after a planned $5.2 billion takeover bid was shelved.

Which ASX sectors were hardest hit and which showed gains on the day?

Materials and consumer staples were the weakest, each down about 1.4%; energy fell about 1.0% and financials around 0.6%. The only sub-index to gain was telcos, which rose roughly 0.4% on the day.

What should everyday investors watch next after this market pullback?

Investors should monitor commodity prices (especially iron ore and other industrial metals), China growth data, miners’ announcements on expansion or takeover activity, upcoming earnings reports, and bank balance‑sheet signals. These factors drove the sell‑off in the article and will be key to assessing whether the weakness is temporary or the start of a broader trend.