It was an interesting week for Australian stocks. Things went well for the first three days.
IT WAS an interesting week for Australian stocks. For the first three days things were going well, with the ASX200 index climbing steadily, gaining 1 per cent by Wednesday.
But come Thursday and the bourse lost 1.3 per cent in a single day, leaving traders scratching their heads.
It happened on the day that China's official manufacturing PMI jumped back above 50, to 50.2, for the first time since July, with new orders the highest since April (anything above 50 means economic activity is growing at an increasing rate).
Surely that's a good thing, given Australia's reliance on Chinese growth? Shouldn't the market have improved, rather than deteriorated?
Fund managers suggested two things could have been going on. First, because China has showed further signs of stabilisation, we have seen strong flows of money into the country in recent days. Since Australia is seen as a defensive allocation within the region, some of that money might have been coming out of our market.
Second, there was talk that a big industry or pension fund might have lost a large mandate this week. Why? Because futures were being sold off in a big way on Thursday, and then again on Friday.
Volumes were twice as large as usual suggesting a large seller of the futures, ahead of the transition of the mandate, might be driving the market lower.
Director of Watermark Funds Management Justin Braitling explained it this way. ''If you've got a $100 million portfolio to sell, you'll go sell $100 million worth of futures, and that straight away reduces your exposure to the Australian market. ''And then, what they'll do is some time in the future they'll actually sell the physical portfolio and buy the futures contracts back. That's how they do it. Large portfolio transitions they'll often sell the futures ahead of transitioning a portfolio. [On Wednesday], futures were trading at premium to cash, and now they've blown out to a large discount.''
For the week, the benchmark S&P/ASX 200 lost 12.3 points, or 0.3 per cent, to 4460.1.
For the week in trading, Arrium slipped 11.5? to 70? after the steel maker's Asian suitor walked away from a $1 billion-plus takeover bid.
The Australian Securities Exchange lost 32? to $29.40 after chief Elmer Funke Kupper abandoned his push for trading hours to be extended to align with key Asian markets.
Bendigo and Adelaide Bank fell 7? to $7.91, even though boss Mike Hirst said there were no signs of a rise in bad debts.
Boral rose 5? to $3.61 after the building products supplier said the US market was showing signs of recovery, even though Australia's residential housing sector was still finding it tough.
Elders fell 11? to 14.5? after the agribusiness and automotive interiors supplier said it wanted to sell its biggest business unit, its rural services business, before someone tried to take it over.
Frequently Asked Questions about this Article…
Why did the ASX200 fall on Thursday even though China’s manufacturing PMI improved?
Although China’s official manufacturing PMI rose to 50.2 (a sign of expanding activity), fund managers said two forces likely pushed the ASX down on Thursday: strong flows of money into China (pulling some regional defensive allocations like Australia lower) and heavy selling of Australian futures by what looked like a large seller ahead of a mandate transition. Those big futures sales — with volumes about twice normal — put downward pressure on the market.
What does China’s manufacturing PMI at 50.2 mean for Australian investors?
A PMI reading above 50 (50.2 in this case) indicates manufacturing activity is expanding, which can be positive for countries tied to Chinese demand. But the article notes market moves can be complicated: money can flow into China and out of other markets like Australia, and short-term trading flows (for example, futures selling) can offset the potential benefit.
How can large futures selling by institutions affect stock prices and trading volumes?
Large institutions sometimes sell futures first to reduce market exposure ahead of a portfolio transition, then sell the physical holdings later and repurchase futures. The article reports futures volumes were about twice normal, suggesting a large seller was active — this can drive futures to trade at a discount to cash and push overall market prices lower in the short term.
What happened to Arrium shares and why did they slip?
Arrium's shares dropped sharply during the week after an Asian suitor walked away from a takeover bid worth more than $1 billion. The failed bid was cited in the article as the main reason for Arrium's decline.
Why did shares of the Australian Securities Exchange (ASX) fall?
ASX shares fell after chief Elmer Funke Kupper abandoned his push to extend trading hours to align with key Asian markets. The article notes the ASX lost ground and its share price fell to about $29.40 following that decision.
Bendigo and Adelaide Bank shares fell — should investors be concerned about rising bad debts?
The article says Bendigo and Adelaide Bank fell despite CEO Mike Hirst stating there were no signs of a rise in bad debts. For everyday investors, that suggests the share move was market-driven rather than the result of an announced deterioration in credit quality, but staying informed on future company updates is sensible.
What did Boral say about its markets and how did the stock react?
Boral said the US market was showing signs of recovery even though Australia’s residential housing sector remained tough. Following that update, the article reports Boral's shares rose to about $3.61.
Why did Elders’ shares fall and what strategic move did the company announce?
Elders fell after announcing it intends to sell its biggest business unit — the rural services business — reportedly to avoid being vulnerable to a takeover. The planned sale of that core unit was cited as the reason for the share decline.
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