Stocks up on bullish news from China, US

THE market put on 1.1 per cent yesterday after positive Chinese trade data buoyed investors already encouraged by positive US earnings and hopes for a pick-up in Australian buyout deals.

By InvestSMART · 11 Jan 2012

By InvestSMART ·
11 Jan 2012

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THE market put on 1.1 per cent yesterday after positive Chinese trade data buoyed investors already encouraged by positive US earnings and hopes for a pick-up in Australian buyout deals.

Official figures showed exports from Australia's largest trading partner rose 13.4 per cent last month compared with a year earlier on increased demand for Chinese goods from Japan and emerging markets.

The figures added to a promising start to the US earnings season and spurred hopes that the global economy might start to emerge from the global economic downturn this year.

At the close, the S&P/ASX 200 Index was up 46.8 points, or 1.1 per cent, at 4152.2.

Markets also took heart from news of a further pick-up in private equity deals. Shares in Pacific Brands surged 14.3 per cent to 64? after the clothing maker confirmed it had received an unsolicited takeover approach from US-based private equity firm KKR.

The offer "has added a bit of spark to an otherwise lacklustre market", said

EL & C Baillieu Stockbroking director Richard Morrow.

It came a day after Spotless Group told private equity suitor Pacific Equity Partners that a $743.4 million offer would be needed to obtain a unanimous recommendation from the board.

Shares in the contract cleaner ended down 0.8 per cent at $2.35 after PEP hinted that it would not raise its offer, describing the $711 million price tag as "highly attractive". It said yesterday it could not progress its proposal without access to due diligence.

Nonetheless, the rise in activity "has got a few sharemarket tragics excited that if their shares get cheap enough then private equity will come along and make them an offer", Mr Morrow said.

Materials and energy stocks were among the day's biggest winners, with both sectors up on improved investor appetite for riskier investments.

Aluminium maker Alumina jumped 6.9 per cent to $1.17, helped by positive leads from joint-venture partner Alcoa, which opened the US reporting season by delivering results that beat the market consensus.

CMC Markets chief market analyst Ric Spooner said investors would be watching the US earnings season over the next month before the start of the Australian reporting season.

"If these signs of improved demand translate into better than expected revenue growth for companies, it will become difficult for investors to ignore equities at current earnings multiples," he said.

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Frequently Asked Questions about this Article…

Why did the S&P/ASX 200 rise about 1.1% on the day?

The market climbed after a mix of positive news: stronger-than-expected Chinese trade data (Chinese exports were reported up 13.4% year‑on‑year), encouraging early US earnings, and renewed hopes for a pick‑up in Australian private equity buyouts. The S&P/ASX 200 closed up 46.8 points at 4152.2.

How did Chinese trade data affect Australian stocks and investor sentiment?

Official figures showing a 13.4% year‑on‑year rise in Chinese exports helped lift global risk appetite. Because China is a major trading partner, improved demand — notably from Japan and emerging markets — boosted confidence that global demand may be recovering, which in turn supported Australian equities.

What happened with Pacific Brands and why did its shares jump?

Pacific Brands confirmed it had received an unsolicited takeover approach from US private equity firm KKR. That news drove the stock higher — shares surged about 14.3% — as investors reacted to the likelihood of a buyout bid.

What is the latest on the Spotless takeover talks with Pacific Equity Partners (PEP)?

Spotless told suitor Pacific Equity Partners that a $743.4 million offer would be needed for a unanimous board recommendation. Spotless shares finished down 0.8% at $2.35 after PEP signalled it would not raise its prior proposal, describing the $711 million price tag as “highly attractive” and saying it could not progress without due diligence.

Are private equity deals changing how investors view Australian stocks?

Yes — a pick‑up in private equity activity has added spark to an otherwise lacklustre market. Analysts quoted in the article noted that some investors are excited by the prospect that private equity might make takeover offers if shares become cheap enough, as shown by interest in Pacific Brands and the Spotless process.

Why did materials and energy stocks do well, and which company led gains?

Materials and energy sectors were among the biggest winners as investors grew more willing to take on risk. Aluminium maker Alumina was a standout, jumping about 6.9% to $1.17, helped by positive leads from its joint‑venture partner Alcoa, which opened the US reporting season with results that beat market consensus.

What should everyday investors watch next during the US earnings season?

Analysts say investors will closely monitor the US earnings season over the coming month before the start of the Australian reporting season. If signs of improved demand translate into better‑than‑expected revenue growth for companies, it could make equities harder to ignore at current earnings multiples.

How can these developments — Chinese trade, US earnings and buyout activity — influence my approach to ASX investing?

These factors primarily influence market sentiment and sector rotation: stronger Chinese trade and upbeat US earnings can lift cyclicals like materials and energy, while private equity activity can create takeover-driven price moves in individual stocks. The article suggests watching earnings reports and buyout developments closely, since better revenue growth or takeover interest can change the risk/reward profile for Australian shares.