Profit-takers pinch market on first of the month

THE stockmarket ended lower for the third straight day as brokers took profits ahead of the reporting season. It follows one of the best monthly starts to a calendar year in about 40 years.

By InvestSMART · 2 Feb 2012

By InvestSMART ·
2 Feb 2012

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THE stockmarket ended lower for the third straight day as brokers took profits ahead of the reporting season. It follows one of the best monthly starts to a calendar year in about 40 years.

At the close yesterday, the benchmark S&P/ASX 200 index was down 37 points, or 0.9 per cent, at 4225.7, while the broader All Ordinaries fell 34.7 points, or 0.8 per cent, to 4291. The March share price futures contract was down 37 points at 4189.

Despite the falls this week, the Australian equities market added about $65 billion in value in January.

The market opened weaker after disappointing US business and confidence data weighed on commodities and dragged down local shares.

Government data showing Australian house prices fell 4.8 per cent last year added to the muted tone as investors continued to fret about the ongoing debt crisis in Europe.

"It's no surprise we're seeing this weakness as it's the first of the month," a CommSec analyst, Juliette Saly, said. "We outperformed other markets in January, so we're seeing profit-taking."

Resources stocks were the day's worst performers, shedding 1.3 per cent, despite Chinese data showing the manufacturing sector in Australia's largest trading partner expanding faster than expected. BHP Billiton ended down 57? at $36.91 while Rio Tinto dropped 42? to $68.74.

Among the day's biggest losers was uranium miner Energy Resources Australia, which slumped 21?, or 13.6 per cent, to $1.33 after it reported a $153.6 million loss last year.

Telstra dropped 3? to $3.30 after a court court ruling in favour of rival Optus that saw Australia's largest telecoms operator lose its $153 million deal to show games exclusively on its mobile phones.

The building materials maker Boral fell 22?, or 2.5 per cent, to $8.68 after it announced it sold its Indonesian business for $US135 million ($127 million) and confirmed its expectations for half-year profit.

Woolworths closed down 9? at $24.70 while Wesfarmers, which owns rival Coles, eased 59? to $29.71 ahead of its second-quarter sales due out today.

An Austock Securities adviser, Michael Heffernan, said he expected the market to resume its recent bullish trend when the earnings season began next week.

"We'll start to see the big guns firing very soon," he said. "I think expectations have been lowered to such an extent that if we get anything reasonable it will see us push higher."

The day's top performer was Fairfax Media (publisher of the Herald), which added 7.5?, or 10.1 per cent, to 81.5? after reports Gina Rinehart, Australia's richest woman, attempted to boost her stake in the company.

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Frequently Asked Questions about this Article…

Why did the ASX (S&P/ASX 200) fall for the third straight day?

The S&P/ASX 200 slipped as brokers and investors took profits ahead of the reporting season, with the index down about 37 points (0.9%) to 4,225.7. Disappointing US business and confidence data pressured commodities and local shares, Australian house prices falling 4.8% last year weighed on sentiment, and concerns about Europe's debt crisis added to the muted tone.

What does 'profit-taking' mean and why is it happening now on the ASX?

Profit-taking is when investors sell holdings to lock in gains. CommSec noted the market outperformed other exchanges in January, so at the start of the month investors were cashing in gains ahead of company results and the reporting season — a common short-term reaction after strong recent performance.

Which sectors and companies were the worst performers in this downturn?

Resources stocks were the weakest sector, down about 1.3% for the day. Major miners BHP Billiton and Rio Tinto fell (BHP to $36.91 and Rio to $68.74), while smaller resource names were hit harder — for example, uranium miner Energy Resources Australia slumped after reporting a large loss.

What happened to Energy Resources Australia and why did its shares slump?

Energy Resources Australia plunged about 13.6% (to $1.33) after reporting a $153.6 million loss for the year, a result that triggered a sharp sell-off in the stock on the day.

Why did Telstra shares drop and what was the Optus court ruling about?

Telstra shares fell after a court ruled in favour of rival Optus, which resulted in Telstra losing a reported $153 million deal to show games exclusively on its mobile phones. The ruling dented Telstra's near-term revenue prospects, prompting the share price decline.

How did Boral's corporate action affect its share price?

Boral fell about 2.5% to $8.68 after announcing the sale of its Indonesian business for US$135 million (A$127 million). The company also confirmed its expectations for half‑year profit, which appeared to be taken in stride by the market but still coincided with the share drop.

Were there any notable winners amid the market weakness?

Yes. Fairfax Media was the day's top performer, jumping about 10.1% (adding 7.5 cents to 81.5 cents) after reports that Gina Rinehart had attempted to boost her stake in the publisher. More broadly, despite the recent pullback, Australian equities added roughly $65 billion in value in January.

What should everyday investors expect when the reporting season starts?

Advisers expect volatility but a potential resumption of the bullish trend once major companies start reporting. Austock adviser Michael Heffernan said lowered expectations mean that reasonable earnings results could push the market higher — in short, earnings season may drive renewed buying if results meet or beat the reduced expectations.