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Markets Live: China property troubles

That’s it for Markets Live today.

You can read a wrap-up of the action on the markets here.

Thanks for reading and your comments.

See you all again tomorrow morning from 9.


The mostly upbeat tone of domestic company reporting season overcame a shaky lead from the United States and concerns about liquidity in China as local shares edged higher.

The benchmark S&P/ASX 200 Index eked out a gain of 1.5 points, or 0.03 per cent, on Monday to 5440.2, to close higher for the seventh straight session. The broader All Ordinaries Index added less than 1 point to 5450.1.

Local shares had a weak lead from Wall Street, which closed lower on Friday after a National Association of Realtors report showed sales of previously owned homes in the United States fell by 5.1 per cent in January, against expectations for a 4.1 per cent fall.

Falls in major Asian markets applied further pressure on the local index in the afternoon. China's Shanghai Composite Index lost more than 2 per cent following news reports Chinese banks are tightening property lending.

The focus for local equity investors remained firmly on company reporting season. Bluescope Steel climbed 7.3 per cent to $6.30 after chief executive Paul O'Malley said the outlook for the steelmaker was improving.

"Generally speaking, so far reporting season has been slightly better than expected", Dalton Nicol Reid chief investment officer Jamie Nicol said. "We are likely to see some decent earnings growth this year for the first time in a number of years which is a real positive."

Read more.


And.. drumroll please... the best and worst for the day!

Transfield Services is up by a massive 25 per cent on news that the company had won (or was close to winning) a $1.2 billion contract to provide services to the Nauru and Manus island refugee camps.

Beach Energy is up 8.9 per cent on a well-received earnings update, while investors were impressed BlueScope Steel had any earnings at all.

Engineering group Monadelphous showed companies in its sector are not all bad apples after it announced a $680 million contract of its own. Up went the shares by 6.5 per cent.

Worst among the top 200 stocks was Pacific Brands, down a modest 4 per cent.

Spreading the net wider to the All Ords and you find one of the stories of the day, Boart Longyear, which is 15 per cent lower and has called in the consultants after it announced it had lost almost $700 million in 2013.


Best and worst performers in the ASX 200.
Best and worst performers in the ASX 200. 
market close

Shares have scratched out the barest of gains to keep intact a seven-trading day winning streak, with the ASX 200 closing less than 2 points higher to 5440.2.

The local market followed the lead of Chinese shares and traded lower into the afternoon before a last gasp gain of around 15 points at close.

The biggest drag on the market were some blue-chip names trading ex-dividend; Telstra finished 2.4 per cent lower, Wesfarmers 2.7 per cent, while Woodside and Suncorp were both 3 per cent down.

The impact of these big names on the overall index was apparent in the fact that 106 stocks were up, and 76 were down (18 were even).

Metals and mining was the best performing sector, led higher by BHP, which finished 0.9 per cent higher, and Fortescue, which advanced 2.2 per cent. Gold producers as a group jumped 2.5 per cent, with Newcrest closing up 2.7 per cent.

Financial stocks were up 0.2 per cent, with Westpac, ANZ, and CBA finished a little higher, while NAB eased 0.6 per cent.


China shares have tumbled to their lowest in two weeks, hurting Hong Kong markets, roiled by mainland news reports saying banks have begun tightening property loans.

China Vanke dived more than 6 per cent after the official Shanghai Securities News reported that Industrial Bank may have stopped some types of property-related loans, though several other banks have left property-loan policies unchanged.

"I would get out of interest rate-sensitive sectors. It's very hard to navigate right now with policy risk on the rise," says Hong Hao, Hong Kong-based chief equity strategist at Bank of Communication International. "Property prices in many cities are still rising and that's not a good sign coming ahead of the annual parliamentary meetings that start next week." Those meetings are due to start March 5 in Beijing.

The Shanghai Composite is down 2 per cent, while Hong Kong's Hang Seng has lost 1.3 per cent.

Mainland losses are coming in hefty volumes. Midday Shanghai volumes were at their strongest in two months after official data showed average new home prices rose 9.6 per cent in China's 70 major cities in January from a year earlier.

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shares down

Mining services provider Boart Longyear has appointed Goldman Sachs to lead a strategic review of the company after it plunged to a $US620 million ($691 million) net loss in 2013 and failed to provide earnings guidance for 2014 due to ongoing industry volatility.

The Utah-based company’s shares fell by 17 per cent in early trading on the ASX before recovering some of those losses to trade 11 per cent down at 37.5¢ in early afternoon trade. Boart shares are down 78 per cent in the last 12 months.

While the company says it remains confident it can manage its business and “associated liquidity risks”, it has asked Goldman Sachs to launch a review to maximise value for Boart stakeholders. The market expects both asset sales and a potential equity raising will be considered as the company fights to stay solvent over the short term.

The review aims to preserve the value of the drilling services and products divisions, ensure the company continues as a going concern while capturing future growth when the market recovers.

The company has again negotiated new financial covenants to cover its debt including minimum cumulative earnings over the last 12 months of $US45 million until March 31, 2015.


The global dividend pool has exceeded $US1 trillion for the first time as companies respond to shareholders’ demands for income, underscoring the seemingly insatiable thirst for dividends triggered by ultra-stimulatory monetary policy.

However, 2013 also represents the slowest growth for dividends in the post-crisis era. Last year, dividends rose 2.8 per cent as US companies began dropping payouts in the fourth quarter. That’s when the US Federal Reserve confirmed it would taper the pace of its bond-buying program in the first step to unwinding more than $US3 trillion of quantitative easing.

Global dividends reached $US1.03 trillion in calendar 2013, a record, representing a 43 per cent increase from 2009, according to research published by Henderson Global Investors. The Asia-Pacific region, where Australia is the dominant source of dividends ahead of Hong Kong, grew 79 per cent over the same period.

On an annual basis the Australia balance ($US40.3 billion) was up 10.2 per cent, ahead of Canada ($US38.5 billion), Germany ($US36.4 billion) and gaining ground on Japan ($US46.4 billion). Since 2009, Australia is up 89 per cent.

Henderson chief executive Andrew Formica predicted the demand for income from equities would endure:

  • The search for income is more than just a response to rock bottom interest rates in recent years. It marks a generational shift as ageing populations must increasingly rely less on state pensions and more on their own savings to provide for retirement.
  • Not only that, but they will need to stay invested in equities much longer than in the past too. This demand for equity income is a trend we see continuing through 2014 and beyond.



Poker machine manufacturer Ainsworth Game Technology reported tax profit for the December half year surged 62 per cent against the previous corresponding period to $35.7 million, and the company boosted interim dividend of 5 cents a share (unfranked), against 3 cents this time last year.

But investors were largely left unimpressed, and the stock eased 1.1 per cent in afternoon trading.

A 51 per cent jump in before-tax profit to $45.6 million was in line with the company’s guidance it provided in mid-January.

Revenue was up 26 per cent to $121.8 million.

Further investment in research and development, the on-going release of innovative product initiatives and new licensing submissions are expected to further assist in achieving market share gains in all established markets and to provide access to new markets in future periods,” the company said.

“Investment in the group’s Las Vegas operational facility in prior periods has provided the necessary support for the expected growth in international markets.”


James Packer, Robert De Niro and former Qantas chairman Margaret Jackson are behind the US launch last week of a super premium Australian vodka brand, VDKA 6100, which they plan to take global and top $100 million in sales within two years, the AFR is reporting.

Packer has sunk an estimated $10 million into Melbourne-based Artisan Spirit Merchants after Jackson brokered the investment deal – both are former Qantas board directors.

Packer, chairman of Crown Resorts, enlisted De Niro to join the venture as a “co-creator” for the new vodka, which is made in New Zealand from milk whey instead of grains or starches to create a smoother taste. VDKA 6100 “soft launched” in the US last week.

The first major promotional activity will be as the official vodka for the Tribeca Film Festival in New York in April, of which De Niro is a co-founder. The actor is also a co-founder of the upmarket international restaurant and hotel group Nobu.

Read more ($)

Skol! Robert de Niro with James Packer.
Skol! Robert de Niro with James Packer. 
wall st

It’s the back half of the earnings season and share price momentum is reaching historical highs.

Around 84 per cent of ASX 200 stocks are now trading above their 21-day moving average (MA), points out IG’s chief market strategist, Chris Weston.

The 21-day MA is an indicator of short-term price momentum, and a popular one among day traders.

At the last high in October (when the market was at 5457), 78 per cent of stocks above the 21-day MA.

At the all-time high in late 2007, the proportion was 64 per cent.

What’s more, at the moment there are around 10 per cent of the index’s constituents 10 per cent above that 21-day average.

Too short term? There are also 68 per cent of stocks above the longer term 200-day MA, Weston says.

“I can’t find a time when this has been higher,” he says: last October there were 63 per cent; in Nov 2007 there were 61 per cent.

“This doesn’t mean we are going to see a pullback,” points out Weston, who describes himself as a momentum-style investor who likes to “buy high and sells higher”.

“What it does show is how broad-based the rally has been and that the moves higher have been over a diverse range of sectors.”

Then a bit of technical talk: “I do feel we are becoming overbought, but the oscillators are not at extremes by any means yet. Still, a break on the S&P of 1850 is needed for all markets this week”.

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Even international drug traffickers need investment advisers, but it looks like criminals don't like putting their money into stocks.

That was Robert Mazur's experience when he went undercover for the US government in the 1980s and '90s. Posing as a Mob-connected businessman, he helped the Medellin drug cartel launder and invest its suitcases full of cash.

His clients were "the biggest crooks in the world," says Mazur, author of The Infiltrator: My Secret Life Inside the Dirty Banks Behind Pablo Escobar's Medellin Cartel.

Yet they "always told me that they don't gamble", Mazur says. "They don't take risk, which is why the stock market was of absolutely no interest to them."

Wait, criminals don't like risk? Murder, drug trafficking, fraud and bribery - all okay. But propose buying them shares of Twitter or Tesla, and they freak?

Investing, by definition, means trusting others. You must believe chief financial officers aren't cooking the books and rely on people like Mark Zuckerberg to make smart use of the billions at their disposal. For criminals who thrive on taking advantage of trust that's not an easy sell.

Convicted felon Sam Antar says stock-picking - trusting in people and numbers you can't directly verify - sets you up as a mark for the unscrupulous.

Read more

Mobsters are happy to pull the trigger on all kinds of deals, but generally stay well away from the sharemarket.
Mobsters are happy to pull the trigger on all kinds of deals, but generally stay well away from the sharemarket. 

Investor reactions are coming in to our report that David Jones is willing to consider Myer’s merger plan.

Two major shareholders in DJs say Australia's No.2 department store firm should reject any takeover from its larger rival unless it tops the company's $1.76 billion market value.

The duo, which together own about 10 per cent of David Jones shares, say the retailer should consider a sale if shareholders benefited but should reject Myer's offer - pitched as a "merger of equals" without a premium.

Myer in October offered to buy David Jones at market value - then about $1.4 billion - to increase their competitiveness amid falling sales as shoppers go online. After Myer repeated its nil-premium offer on February 20, David Jones said it would consider any proposal in its shareholders' interests.

"If they want to acquire it, they have to pay up for it," says Paul Xiradis, chief executive of fund manager Ausbil Dexia, David Jones's second-largest shareholder with a stake of around 5 per cent:

  • In order for it to be compelling for David Jones shareholders it needs to be something which is at a reasonable premium. I don't think a nil (premium) merger discussion is one that should lead to anywhere.

Simon Marais, managing director of Allan Gray Australia, which also has about 5 per cent of David Jones shares, says the company "shouldn't do a deal where all the benefits go to Myer".

David Jones shares have risen 15 per cent since January 30 when it first confirmed it had received and rejected Myer's offer two months earlier. The shares are 0.6 per cent up in a flat overall market. Myer shares are up 1.5 per cent.

shares down

Ructions over Santos's unimpressive earnings and poor reserves data released last Friday are continuing, with JPMorgan cutting its target price for Santos shares, while raising question marks over the long term cash generation capacity of Santos's Queensland gas export project.

The bank cut to $13.88 from $14.28 its target price for Santos shares, with a 'neutral' rating, telling clients it prefers Woodside to Santos.

"Yet again, GLNG [the Santos gas project] failed to register meaningful 2P reserve growth and 2C contingent resources were down," the bank told clients. "We view 2P+2C as an indication of ultimate resource recovery.

"We think the reserve report provides more cause for concern over the long term cash flow generation of GLNG and hence the return on capital of the project."

Shares are flat at $13.59.


Rising demand for physical gold in China is seen as one of the reasons behind the recent recovery in the precious metal’s price, which is currently hovering at $US1320 an ounce.

China overtook India last year as the world’s largest buyer of physical gold, according to a report by the World Gold Council. In 2013, Chinese demand for gold bars, coins and jewelry soared 32 per cent to a record high, as China imported 1066 metric tonnes of the precious metal, or more than one third of the 2968 metric tonnes of gold produced globally.

And the strong demand for the precious metal seems to be continuing. The (very bullish) ‘In gold we trust’ blog has posted a few photos of a veritable gold shopping frenzy in China around lunar new year.

‘‘People are buying gold like groceries,’’ the blog quotes a reader. The shopping splurge has ‘‘resulted in an all time Chinese gold demand record in January – which accounted for 246 tonnes,’’ the blog says.

Our Fairfax correspondents in China, Phil Wen and Angus Grigg, say the rush for gold isn’t necessarily a sign consumers don’t trust the banks, as the blog implies. Rather, they say local investors see it as a way of preserving wealth, while property is considered overpriced and the sharemarket has underperformed.

Rush for gold
Rush for gold 

This chart shows how Sydney property prices have been highly correlated to US monetary expansion.

It reveals "the power of the Fed balance sheet since 2009 and its impact on asset prices," say analysts Bank of America-Merrill Lynch.

It's one of a number of exhibits from the investment bank's strategists, who in their note warn investors to get ready for the end of the carry trade in emerging markets as QE is pulled back.

"Carry trade" refers to a strategy where investors borrow cheaply in a low-yielding currency, such as the US dollar, to buy a range of high-yielding assets around the world.

London property is another asset that has moved in line with monetary expansion out of the US, although these also reflect "some spillover EM demand" write the analysts.

Other assets that have been highly correlated to QE according to BoA-ML are: US biotech and tech stocks, EM gaming stocks, and EM internet stocks.

Could the party go on? Yes, if for some reason – a significant deterioration in the US labour market, or a deflationary shock from China, or any other surprise that could lead to a cessation of the US tapering could prolong this carry trade," write the analysts.

"This is not the house base case. We believe it is better to start preparing for a post-QE world. As one of our smartest clients told us: ‘The main theme in the past five years was QE; if that is coming to an end, investments and themes that worked in the past five years must therefore be questioned.’ We agree.”

The Fed giveth, and the Fed taketh away: Sydney property prices have been highly correlated with QE
The Fed giveth, and the Fed taketh away: Sydney property prices have been highly correlated with QE 
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The global dividend pool has exceeded $US1 trillion ($1.11 trillion) for the first time as companies respond to shareholders’ demands for income, underscoring the seemingly insatiable thirst for dividends triggered by ultra-stimulatory monetary policy.

However, 2013 also represents the slowest growth for dividends in the post-crisis era. Last year, dividends rose 2.8 per cent as US companies began dropping payouts in the fourth quarter. That’s when the US Federal Reserve confirmed it would taper the pace of its bond-buying program in the first step to unwinding more than $US3 trillion of quantitative easing.

Global dividends reached $US1.03 trillion in calendar 2013, a record, representing a 43 per cent increase from 2009 according to research published by Henderson Global Investors.

The Asia-Pacific region, where Australia is the dominant source of dividends ahead of Hong Kong, grew 79 per cent over the same period.

The depreciation of the Australian dollar late last year hurt Australia’s standing. Australia paid out $US40.3 billion in dividends last year, however that figure would have been higher in US dollar terms had the foreign exchange rate remained stable.



Average new home prices in China's 70 major cities rose 9.6 per cent in January 2014 from a year earlier, easing from the previous month's 9.9 per cent rise, according to Reuters calculations based on official data published today.

In month-on-month terms, prices rose 0.4 per cent in January, unchanged from December's rise of 0.4 per cent.

The National Bureau of Statistics said new home prices in Beijing rose 14.7 per cent in January from a year earlier, compared with December's year-on-year increase of 16 per cent. Shanghai prices were up 17.5 per cent in January from a year ago, versus 18.2 per cent annual growth in December.

China's property market began to show signs of stabilising at the end of 2013, with home price rises easing in some major cities as local governments took further tightening measures.

Reuters started its weighted China home price index in January 2011 when the NBS stopped providing nationwide data, only giving home price changes in each of 70 major cities.

asian markets

Time to take a tour of the region's sharemarkets:

  • Japan's Nikkei is up 0.5 per cent
  • Hong Kong's Hang Seng is 0.7 per cent lower
  • China's Shanghai Composite index is down 1.2 per cent
  • Taiwan's TAIEX is down 0.1 per cent
  • Korea's KOSPI is 0.2 per cent lower
  • Singapore's Straits Times index is up 0.3 per cent
  • The Kiwi NZX 50 is 0.5 per cent up

Deutsche Bank has put out one of the more bearish notes on the dollar, predicting a ‘‘benign collapse’’ of the currency that could take it into the 60-US cent range by late next year.

In a note this morning, the bank says it expects the RBA to be on hold over 2014, 2015 and in the first half of 2016, but predicts a rate rise in the US around mid-2015, which would help strengthen the greenback.

"The sum of these views presents us with a somewhat dramatic conclusion for AUD/USD. Namely that it could be trading with a ‘6 handle’ – in fact well into the 60’s come end-2015," the bank’s chief economist Adam Boyton notes:

  • Critically, we would view this as a benign ‘collapse’ in the AUD; not one sparked by a domestic or offshore ‘crisis’.
  • Of course that won’t stop people constructing bearish China scenarios, or continuing to claim that Australian  housing is a ‘bubble’. (That latter claim is, we think, now entering its tenth year…)
  • Our point instead is that a much lower AUD should be considered a ‘base  case’ and reflective of a ‘central forecast’; not some ‘tail risk’ event.
  • Indeed, should the world pan out as DB expects, AUD weakness over coming years could ultimately prove to be an important element in managing the headwinds faced by Australia as the mining boom ebbs.
  • While AUD/USD to the mid-60s is a long-term view – and is conditional on DB getting the RBA, the Fed and the USD ‘right’ - this work does suggest that the risks around our current end-2015 AUD/USD forecast of 0.7500 are skewed to the downside.
  • Over the near-term, however, (i.e. over the next few months) we remain of the view that the risks to the AUD are to the upside, with the labour market likely to strengthen.


A move by the US Fed to lift rates in mid-2015 could push the Aussie dollar towards 65 US cents.
A move by the US Fed to lift rates in mid-2015 could push the Aussie dollar towards 65 US cents. 

Australia’s biggest companies need to start spending their $71.1 billion cash pile on mergers and acquisitions this year or face the wrath of shareholders, a leading economist says.

The cash pile of almost half of ASX 200 companies grew by 44.8 per cent in 2013, as corporations tightened their belts during an election year, according to data compiled by CommSec.

Despite economic conditions still being soft, with unemployment at its highest in a decade, CommSec chief economist Craig James said now was the time for companies to loosen their purse strings.

Mr James said companies had no reason to hold on to their cash, with business confidence and conditions improving since the federal poll last September as well as consumer confidence ‘‘picking up’’.

‘‘While it was a smart move over 2013 to store up the eggs for a rainy day, now businesses have got to be on the look out for opportunities rather than be focus on risk,’’ Mr James said.

Mr James said the cash pile was spread across all sectors on the ASX.

As half-year reporting season enters its final week, Mr James said the improvement in economic conditions was ‘‘clearly evident’’ in the profit results of 98 companies on the ASX 200.

He said about 60 per cent of companies had lifted dividends, while about 25 per cent had left payouts unchanged.

‘‘But in aggregate, dividends have only lifted 3.9 per cent on a year ago.”

Read more.


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