China optimism pushes ASX-listed miners higher

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Gains in the sharemarket’s two largest sectors, financials and materials, sparked an intraday rebound on Tuesday but weren’t enough to push the ASX into the black.

A sharp jump in iron ore futures following an upbeat speech by Chinese Premier Li Keqiang lit a fire under the stocks of iron ore miners such as Fortescue, helping the market recover most of the ground it lost at the open.

The benchmark S&P/ASX200 ended the session down just 0.1 per cent to 5714.2, having earlier dipped as low as 5685.2.

“There’s definitely a lack of clear direction in the market,” said Fairmont Equities managing director Michael Gable. “It doesn’t take much to spook, and it doesn’t take much to get people excited. Most sectors are lacking momentum.”

The spike in iron ore futures closely followed a speech by Chinese premier Li Keqiang to the World Economic Forum in ...The spike in iron ore futures closely followed a speech by Chinese premier Li Keqiang to the World Economic Forum in Dalian. Mr Li said China was entirely capable of achieving its full-year growth target and controlling systemic risks despite many challenges facing its economy.  Photo: Sanghee Liu

Dragging on the market on Tuesday were all sectors barring materials and the banks, with CSL, down 1.4 per cent, Wesfarmers, down 1.2 per cent and Macquarie Group, down 1.0 per cent, the three biggest weights on the index.

The materials subindex rose 0.3 per cent, after the most actively traded contract on the Dalian Commodities Exchange jumped 2.9 per cent to 443.5 yuan per tonne halfway through the session – its highest level in a month.

Pure-play iron ore miner Fortescue Metals Group, already trading higher on the back of analyst upgrades in recent days, took another jump on the rise in Dalian futures, closing up 3.8 per cent. Diversified miners BHP Billiton and Rio Tinto reversed early falls. BHP closed flat while Rio Tinto gained 0.5 per cent.

Also posting a standout performance by Whitehaven Coal. It shot up 5.5 per cent after Morgan Stanley upgraded the stock to ‘overweight’ with a price target of $3.55.

How the market moved on Tuesday.How the market moved on Tuesday.

The big four banks, meanwhile, had a mixed performance. CBA and ANZ rose strongly, up 0.7 and 1.0 per cent respectively, while Westpac and NAB were flat. Mr Gable said the market had probably seen the floor on how far bank stocks could fall, after a major sell-off in recent weeks.

“[Tuesday’s movements] show the downside in the banks is limited. The next move is probably higher in July.”

But the market as a whole is likely to still struggle, he said. “If you have a view that the Australian dollar will struggle to go higher, our market will probably struggle as well,” he said. “It doesn’t encourage overseas buyers.”

The Australian dollar rose just above the US76¢ mark as the market closed – it hasn’t broken past US77¢ since March.

Stock watch: ALS

Shares in mining services company ALS Ltd surged 8.6 per cent to $7.82 after multiple analysts upgraded the stock on Tuesday. Citi analysts increased their price target on the stock to $8.15 after writing that the company had up to $471 million it could spend on mergers and acquisitions, or on a special dividend or share buyback. Citi’s preference is for the former – “We would not rule out the possibility of capital management, but believe that M&A would drive superior returns for shareholders,” Citi told clients in a note on Tuesday morning, as it could drive earnings per share upgrades of between 6 to 8 per cent, or up to 11 per cent for a larger deal. Credit Suisse also upgraded the stock to an outperform on Tuesday.

By Myriam Robin
Sydney Morning Herald

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