Spooked investors bring end to rally

THE sharemarket ended slightly higher yesterday, pulling back from early highs after a weak reading from a survey of Chinese manufacturing activity spooked investors.

By InvestSMART · 24 Aug 2012

By InvestSMART ·
24 Aug 2012

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THE sharemarket ended slightly higher yesterday, pulling back from early highs after a weak reading from a survey of Chinese manufacturing activity spooked investors.

The benchmark S&P/ASX 200 Index gained 7.7 points, or 0.2 per cent, to 4383.7, well off the day's high at 4403.9.

Stocks opened strongly higher after minutes from the US Federal Reserve's last meeting, which hinted at swiftly launching another round of bond buying to stimulate the struggling US economy.

But the rally fast ran out of steam after HSBC's flash China purchasing managers index showed the factory sector contracting this month at its fastest pace in nine months, raising fresh concerns about the health of global demand.

Gold stocks were the best-performing sector, gaining 4.1 per cent after the gold price bounced to its highest in more than three months in the wake of the Fed's minutes.

Materials also performed well, gaining 1.2 per cent despite talk by politicians that the mining boom had ended.

Lonsec senior client adviser Michael Heffernan noted the positive reaction to Fortescue Metals' full-year profit, as well as gains for BHP Billiton the day after its Olympic Dam announcement.

"The iron ore sector, despite some price softness, is doing very well," Mr Heffernan said.

Fortescue gained 9? to $4.24 after the miner said full-year net profit rose 53 per cent to a record $US1.56 billion, while BHP advanced 25? to $33.41.

Qantas reported its first full-year net loss since listing on the exchange in 1995 and said it would cancel orders for 35 aircraft to cut costs. The stock finished up 3?, or 2.6 per cent, at $1.205 and was the second-best performer on the S&P/ASX 50, while rival Virgin Australia ended the day down half a cent at 45.5?.

Investors punished Fairfax Media after the company reported a $2.73 billion full-year net loss as the company took a major write-down on the value of its mastheads.

The diversified publishing house was the second-worst performer on the S&P/ASX 200, tumbling 9.7 per cent, or 5.5?, to 51?.

In news that came after the close of trade, top Fairfax shareholder Gina Rinehart was looking to further cut her stake, offering to sell 5 per cent of the company at 50? a share.

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Frequently Asked Questions about this Article…

What happened to the ASX on the day the S&P/ASX 200 pulled back from early highs?

The S&P/ASX 200 ended slightly higher, up 7.7 points (0.2%) to 4,383.7 after opening strongly. The early rally faded when a weak China manufacturing PMI reading spooked investors and trimmed gains from the session's high.

How did the US Federal Reserve minutes influence Australian markets?

Minutes from the US Federal Reserve's last meeting signalled the possibility of another round of bond buying to stimulate the US economy. That hint initially lifted Australian stocks, helping markets open strongly before later sentiment was dented by the China PMI.

Why did the HSBC flash China purchasing managers index (PMI) alarm investors?

HSBC's flash China PMI showed the factory sector contracting at its fastest pace in nine months. That weaker-than-expected reading raised fresh concerns about global demand and caused the market rally to run out of steam.

Which sectors outperformed and what should everyday investors know about them?

Gold stocks led sectors, gaining about 4.1% after the gold price jumped to its highest in more than three months. The materials sector also performed well, up roughly 1.2%, buoyed by continued strength in the iron ore area despite talk the mining boom had ended.

What did Fortescue Metals report and why did investors react positively?

Fortescue Metals said full-year net profit rose 53% to a record US$1.56 billion. The strong result prompted a positive market reaction to the miner's shares, reinforcing confidence in parts of the iron ore sector.

How did BHP Billiton fare after its Olympic Dam announcement?

BHP Billiton's shares advanced following its Olympic Dam announcement, contributing to gains in the materials sector and investor interest in large mining names.

What caused Qantas shares to move and what did the airline announce?

Qantas reported its first full‑year net loss since listing in 1995 and said it would cancel orders for 35 aircraft to cut costs. Despite the loss, Qantas shares finished higher for the day, reflecting investor focus on the airline's cost-cutting actions.

Why did Fairfax Media shares fall and what did major shareholder Gina Rinehart do after the close?

Fairfax Media reported a full-year net loss of $2.73 billion after taking a major write-down on the value of its mastheads, prompting the shares to tumble about 9.7%. After the close, top Fairfax shareholder Gina Rinehart looked to further reduce her holding by offering to sell a 5% stake.