Worries over China slice early gains

THE sharemarket ended slightly higher yesterday, giving up most of strong early gains as concerns about China's economic growth came back into focus.

By InvestSMART · 14 Aug 2012

By InvestSMART ·
14 Aug 2012

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THE sharemarket ended slightly higher yesterday, giving up most of strong early gains as concerns about China's economic growth came back into focus.

The S&P/ASX 200 Index finished 6 points, or 0.1 per cent, higher at 4283.3 after surging 37 points at the start of the session.

Despite the fall in the benchmark index, the materials sector rose a robust 1.1 per cent and industrials put on 0.8 per cent. Financials fell 0.4 per cent.

The gold sector jumped 2.7 per cent, reflecting a rise in the bullion price as well as a 4.4 per cent gain by Newcrest Mining. Its shares rose $1.07 to $25.40 in response to a 23 per cent jump in full-year profit. At the close of the Sydney session, spot gold was up $US11.32 at $US1624.60 an ounce.

IG Markets strategist Stan Shamu said that, though most of the earnings reports released yesterday were positive, investor sentiment was weighed down by China failing to announce stimulus measures.

"On Friday we saw European markets fall, only to get up on US recovery on speculation that China might announce some sort of stimulus over the weekend," Mr Shamu said. "I think some investors are getting sceptical that we're not going to get stimulus any time soon."

Chinese shares in Shanghai had their biggest daily loss in nearly a month, slumping 1.5 per cent.

Several local stocks notched up fairly big gains, with BlueScope, Downer EDI and JB Hi-Fi releasing better than expected earnings results. UGL and James Hardie, however, were both under pressure.

BlueScope was the day's star performer, closing 9?, or 35 per cent, higher at 35? after the company said it planned to sell half its coated-steel products business to Nippon Steel Corp for $US540 million.

JB Hi-Fi shares rose 53?, or 5.8 per cent to $9.75, after it said full-year earnings had fallen 5 per cent but that it expected sales to grow in the year ahead.

Downer EDI posted a net profit of $112.8 million for the year to June 30, sending its stock up 35?, or 11.2 per cent, to $3.47.

UGL's shares fell $1.37, or 10.6 per cent, to $11.49 after a 15 per cent drop in full-year profit.

James Hardie posted an improved net profit of $US68.5 million for the three months to June 30, but the shares fell 6.1 per cent to $7.77.

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Frequently Asked Questions about this Article…

How did the S&P/ASX 200 perform today and what caused it to give up early gains?

The S&P/ASX 200 finished slightly higher, up 6 points (0.1%) at 4,283.3 after surging 37 points at the start of the session. Early gains were largely pared back as investor concerns about China’s economic growth and the lack of a clear stimulus announcement weighed on sentiment.

Which sectors led the market and which sectors lagged on the day?

Materials led the market with a 1.1% rise and industrials also gained about 0.8%. The gold sector jumped 2.7%, while financials lagged, falling about 0.4%.

Why did the gold sector and Newcrest Mining perform well today?

The gold sector rose as spot gold increased (up US$11.32 to US$1,624.60 an ounce). Newcrest Mining jumped 4.4% — its shares rose by $1.07 to $25.40 — after reporting a 23% jump in full-year profit.

What happened with BlueScope and why did its shares surge?

BlueScope was the day’s top performer, rising about 35% after announcing plans to sell half of its coated-steel products business to Nippon Steel Corp for US$540 million.

Which local companies reported strong results and how did investors react?

BlueScope, Downer EDI and JB Hi‑Fi released better‑than‑expected results. Downer posted a net profit of $112.8 million for the year to June 30 and its stock jumped about 11.2% to $3.47. JB Hi‑Fi said full‑year earnings fell 5% but expected sales growth, and its shares rose around 5.8% to $9.75.

Which companies were under pressure despite reporting results?

UGL fell after reporting a 15% drop in full‑year profit, with its shares down $1.37 (10.6%) to $11.49. James Hardie, although it posted an improved net profit of US$68.5 million for the three months to June 30, saw its shares fall about 6.1% to $7.77.

How did China’s lack of stimulus affect markets and investor sentiment?

Investors were discouraged when China failed to announce stimulus measures, which knocked confidence after earlier optimism. IG Markets strategist Stan Shamu said speculation that stimulus might be announced had supported gains in other markets, but growing scepticism that stimulus is imminent dampened sentiment. Chinese shares in Shanghai also slipped about 1.5%, marking their biggest daily loss in nearly a month.

What should everyday investors take away from today’s mix of earnings beats and macro worries?

The day shows that strong company earnings can help stocks but wider macro concerns — like doubts over China stimulus — can quickly offset gains. Sectors tied to commodities and gold outperformed, while banks and some industrials were mixed. Watching both company results and broader geopolitical/economic headlines can help explain short‑term market moves.