Max Mason A selloff in the major banks and miners has dragged the Australian sharemarket to a six-month low and a fifth consecutive week of losses.
For the week, the benchmark S&P/ASX200 dropped 2.2 per cent, or 119.7 points, to 5313.4, shaving about $36 billion off the market’s value and wiping out the last gains of 2014. The broader All Ordinaries also lost 2.2 per cent, or 120.7 points, to 5316.6.
On Friday the ASX200 fell 1.3 per cent, or 68.8 points, while the All Ordinaries dipped 1.2 per cent, to 65.8 points. So far in September, the ASX200 has slumped 5.6 per cent, and is now down 0.7 per cent since the beginning of the year.
“We remain constructive on the market. This setback has surprised us and we think markets should head higher,” Morgan Stanley strategist Malcolm Wood said.
“We think the drivers for that include robust US growth and positive US market backdrop, low profile easing and structural reforms in China, lots of liquidity coming out of Europe.”
Partly the local selloff was due to a sharp 1.9 per cent drop in the Australian dollar over the week, which spooked global investors. But the fall in the currency should be good news for the local market once the dust settles, Mr Wood said.
In addition, Wall Street on Thursday suffered its biggest one-day drop since July. Analysts said the benchmark S&P 500 index fell through support levels which could signal more losses to come.
Also weighing on the local market, iron ore slumped 3.8 per cent over the four days to Thursday, with weakness in China’s property sector and supply far outweighing demand dragging on the steel making ingredient.
Global miner Rio Tinto fell 2.4 per cent to $60.11 over the week, while rival BHP Billiton slumped 3.7 per cent to $34.16. Iron ore miner Fortescue Metals lost 5.9 per cent to $3.54.
Australia’s big four banks fell heavily during the week, continuing the selloff in September as investors dumped yield stocks. Westpac, which has entered into technical correction – losing more than 10 per cent since its April highs – dropped 3.9 per cent over the week to $31.89, while NAB dipped 3.5 per cent to $32.70.
Commonwealth Bank lost 3.3 per cent to $75.26 for the week and on Friday also hit correction status. ANZ, which had already gone into correction prior to the week, fell a further 2.9 per cent to $30.99.
“Markets are reasonably valued, they’re not cheap, they’re not dear, they’re about right and therefore the earnings growth [from] companies should drive the total return of the businesses that we own going forward [over the long-term],” Hyperion portfolio manager Joel Gray said.
“Provided that the economy continues to chug along, then I think you could justify valuation levels around here. We’re not anticipating a major correction, on the proviso that the economy continues to move along, it just needs to etch out small gains.”
Among companies reporting, TPG Telecom beat analyst earnings expectations with a pre-tax profit of $364 million. As revealed by Fairfax Media the telecommunications provider entered into an agreement with Foxtel to sell some of the pay television company’s basic channels. TPG shares jumped 5.9 per cent to $7.19 for the week.
New Zealand-based clothing company Kathmandu reported full-year of $NZ42.2 million ($38.1 million), down 4.5 per cent on the previous year. However, the result was at the upper level of analyst expectations, after a cold snap towards the end of June helped the retailer boost sales.
Kathmandu shares rose 3.2 per cent to $2.91 for the week.
Brickworks shares dipped 0.4 per cent over the week to $13.45 despite the company reporting a 20.7 per cent surge in full-year profit. However, Australia’s biggest brick maker still has a cloud hanging over its head about the potential legal implications of donations made to the NSW Liberal Party in 2010-11.
Nufarm reported a 53 per cent drop in full-year profit to $37.7 million. However, shares surged 15.4 per cent to $4.86 during the week to with the pesticides group painting a more stable outlook for the next year.
Falling milk prices have halved dual-listed dairy company Fonterra’s profits to $NZ503 million. Local shares added 0.4 per cent to finish the week at $5.70.