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Markets Live: Flat in May

And just in case you were missing it, here's the wrap. Have a great weekend.

That’s it for Markets Live today.

Thanks for reading and your comments.

Have a great weekend and see you all again Monday morning from 9.



Shares inched higher over the past month as investors ignored the adage “sell in May and go away” and optimism about the energy sector offset gloom in the iron ore sector.

The S&P/ASX 200 Index eked out the smallest of gains for the month, rising 0.06 per cent to 5492.5 points, to post the first gain in May in five years. After two consecutive months of gains shares are now ahead 2.3 per cent year-to-date.

Today, the benchmark index fell 30 points, or 0.5 per cent, as mining stocks extended their slide and Commonwealth Bank of Australia fell shy of Thursday’s record high.

As May drew to a close, the S&P 500 was trading at a record high having advanced 1.9 per cent, while most other major developed markets also pushed ahead over the month.

“Equity markets were broadly stronger across all sectors and geographies in May as investors’ attention shifted from a mixed US earnings season to increased global merger and acquisition activity,” Bell Asset Management chief investment officer Ned Bell said.

On the local bourse, Commonwealth Bank led the market’s gains, lifting 3.8 per cent over the month to $81.59. But the rest of the big four banks, which report on a different calendar to CBA, all declined after trading without the rights to bumper interim dividends.

Westpac Banking Corporation lost 0.8 per cent to $34.42, ANZ Banking Group shed 1.7 per cent at $33.49, and National Australia Bank fell 3.5 per cent to $33.49.

“The banking sector delivered standout results during bank interim reporting season in May,” Goldman Sachs Asset Management head of Australian equities

Dion Hershan said. “The banks showed credit growth, great cost control, low bad debts and gave a more promising outlook.”


From today's best and worst below, the obvious standout is Lynas, down 17.6 per cent today after jumping around 50 per cent in recent days. Why the big moves? Here's IG's Evan Lucas:

“The rally came as the company finally looked to be shoring up its balance sheet, however the share purchase plan (SPP) has got away at a reasonable discount to the last trading price. At an issue price of $0.113 a share, the market is just reacting to the SPP level and pulling back closer to the SPP price."


interest rates

The local economics team at Goldman Sachs have restated their minority view that the next rate move will be down, not up.

 But despite the strong rhetoric, in a new note to clients they push the timing for a 25 basis point cut to September from July.

First, they detect a more “dovish tone” from the RBA since the central bank adopted a neutral policy stance in February. The change in tone, say the Vampire Squid’s economists, was in response to:

  • “Sharply” lower commodity prices;
  • Global growth which “faltered somewhat” in early 2014;
  • “Relatively benignly” inflation; and
  • Business and consumer surveys moving lower.


Secondly, while March quarter GDP growth should be “robust”, they see a “deterioration” in their propriety leading indicators.

“Our current activity index suggests growth momentum has slowed materially in 2Q14, financial conditions have tightened and an audible snapping in consumer sentiment post the Budget has taken sentiment to levels not seen since prior to the current rate easing cycle,” they write.

Despite all that, they delay their rate cut call by two months, but don’t think for a second they are changing tack:

“Indeed, an assessment of forces that shift the RBA policy bias in the past has reinforced our belief that further monetary accommodation is required.”

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market close

The sharemarket has closed at the day's lows, after a last-minute sell-off at the end of the month.

The benchmark S&P/ASX200 index fell 27 points, or 0.5 per cent, to 5492.5, while the broader All Ords lost 25.4 points, or 0.5 per cent, to 5473.8.

Among the sectors, materials slumped 1.3 per cent, led down by iron ore miners after another drop in the bulk commodity's price.

The ASX200 eked out small gain of 0.06 per cent for the month, making it the first May in five years the sharemarket has posted a gain, albeit a minimal one.

Today's biggest winners and losers among the top 200 stocks
Today's biggest winners and losers among the top 200 stocks 

Seven Group Holdings chief operating officer Ryan Stokes, the son of Australian billionaire Kerry Stokes, says he and his father would "love" to do business deals with James Packer in China and elsewhere.

Speaking at an Australia and China conference in Melbourne, Mr Stokes responded to comments by theCrown Resorts chairman that he was interested in working with the Seven Group Holdings executive chairman.

The two are close friends and recently travelled to China together as part of Tony Abbott's business delegation, which Ryan Stokes also took part in.

"He has an incredibly eye to pick investments, he was done exceptionally well," said Mr Stokes.

"To be able to do that, we would be excited about it. And it's also good fun. He and Kerry have a very close relationship. That opportunity we would love."

Mr Stokes did not specify whether the media sector represented the chance for a partnership with Mr Packer, who said at the conference he was keen to expand his film production business Ratpac to China.

Seven Group Holdings operates the Seven television network in Australia, while the Stokes family hasprivate media interests in China, including content distribution, production and publishing ventures.

However Mr Stokes said he was keen on looking at a "diverse set" of opportunities for investments with Mr Packer:

"I don't think that would be limited to China," he said.

Read more.

Ryan Stokes says his father Kerry (right) would love to be in an Asian-focussed partnership venture with James Packer (left).
Ryan Stokes says his father Kerry (right) would love to be in an Asian-focussed partnership venture with James Packer (left). Photo: Alex Ellinghausen / Fairfax

China's growing list of problems, including a slowing economy, rising militarism, messy corruption crackdown and increasingly troubled shadow banking sector, could provoke a major financial crisis. In the "never waste a crisis" spirit, a number of investment opportunities present themselves:

  • Short Chinese stocks. Investors who lack direct access to mainland Chinese stocks can use Hong Kong-listed equities and exchange-traded funds.
  • Sell commodities. A financial crisis in China would no doubt further depress commodity consumption and prices.
  • Sell weak developing-market stocks and bonds, especially commodity exporters like the poorly managed emerging economies of Argentina, Brazil, Indonesia, South Africa and Turkey.
  • Sell commodity currencies. The currencies of weak emerging economies that depend on commodity exports for growth will suffer. Developed countries' currencies, such as the Australian and Canadian dollars, are also vulnerable.
  • Avoid major country equities. Financial difficulties and recession in China, the world’s second-largest economy, would probably spread globally.
  • Buy the US dollar and Treasury bonds. These are the consistent havens in times of global uncertainty.
  • Short the Hong Kong dollar.

Perhaps all of this is fanciful. China could successfully increase economic growth, transition smoothly to a domestic-driven economy, control its rising militarism, reduce corruption without major disruptions, cease manipulating the yuan, lower the risks in shadow banks without clumsy bailouts, slowly let the air out of the real-estate bubble and deregulate interest rates.

Given the history of other countries with similar problems, I wouldn’t bet on it.

Read more at Bloomberg.



Origin Energy and Santos are competing against the Chinese state-owned giant, PetroChina, for a $300 million plus stake in the Poseidon gas discovery off the coast of Western Australia, reports the AFR’s Street Talk column.

An announcement on a deal is expected within the next few days.

According to sources, Origin Energy and Santos are battling hard for the bulk of Karoon Gas Australia’s 40 per cent stake in the field as both seek to expand their gas reserves.

Woodside and Shell have also been mentioned as potential contenders, although sources played down their appetite, given the number of large-scale projects in which they are involved such as the $27 billion Browse gas fields.

Poseidon sits to the north-east of Browse and was discovered in 2009 by Karoon and US heavyweight, ConocoPhillips.

As Street Talk revealed this week, PetroChina may extend its grip on the hydrocarbon reserve if it opts to buy the Karoon holding.

The listed arm of China Natural Petroleum Corp already controls a 20 per cent stake in Poseidon, which it snapped up in 2013 from ConocoPhillips, and holds a slice of the Woodside-led Browse project.

Purchasing an additional portion from cash-strapped Karoon would take its control of Poseidon to over 50 per cent. Any deal would be subject to FIRB approval and joint venture partner, ConocoPhilips, would have to waive its pre-emptive rights.


Listed copper miners have rallied this year despite a falling price for the red metal, as merger and acquisition activity pushes share prices higher.

The catalyst was a $1.4 billion takeover offer for PanAust from its major shareholder, Chinese state-owned Guangdong Rising Assets Management.

The $2.30 a share offer was at a 45 per cent premium. PanAust’s stock popped by a third, while peer OZ Minerals and Sandfire Resources also surged.

The offer was rejected, “but it signaled to the market that corporates may view copper,” write analysts at UBS in a note to clients this morning.

In 2014 the copper price has been weighed down by Chinese credit concerns, but the broker believes those issues have “masked longer term concerns around mine supply from key producer Chile”.

So which stocks to play the sector?

The UBS team say they “favour low cost operations with free cash flow,” and PanAust (buy; 12-month price target $2.47) and Sandfire Resources (buy; PT $7.70) are two stocks that fit the bill.

The chart below compares all-in costs per tonne of copper for each of the listed miners covered by the broker.

The say Tiger Resources (buy; PT 58c) “offers a compelling production and cost profile for those comfortable with [the sovereign risk of operating in the Democratic Republic of Congo]”.

But the have a negative outlook on OZ Minerals (sell; PT $3.50) due to its “heavy capex” requirements this year and “a questionable outlook beyond the open pit”.

Blackthorn Resources (buy; 34c) they see “as a solid development opportunity trading at cash backing”.

Copper miners' cash costs. Source: UBS
Copper miners' cash costs. Source: UBS 
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The Shanghai Futures Exchange is planning to launch China's first nickel and tin futures this year, local media is reporting, as part of steps to internationalise the country's commodity markets.

Ye Chunhe, ShFE vice general manager, also confirmed to a conference in Shanghai on Thursday that the bourse expects to launch a futures contract on a base metals index, the Securities Times reported.

The paper added, without citing sources, that the exchange had also designed options contracts for copper and gold.

The ShFE, the country's biggest commodity exchange by the value of contracts handled, trades copper, aluminium, zinc, lead, natural rubber, fuel oil and rebar, besides gold and silver.

It is also aiming to launch crude oil futures this year, a move that would give the world's second-largest oil consumer greater influence in global pricing.


Foreign investors may be helping to push up the prices of some Australian homes, but are probably not crowding out first home buyers, the Reserve Bank says.

Amid anecdotal claims some local buyers are being priced out of the market by cashed-up overseas investors, a new submission from the central bank examines official data on the topic.

It says foreign investment in residential housing was at most 5 to 10 per cent of market turnover, and last year the government approved $17 billion in property investment from overseas, with most of the money funding the purchase and construction of new homes.

As foreign investors' share of the market has remained fairly steady over the past two decades, the Reserve concluded overseas buyers were not the main reason for price rises over the period.

However, it conceded extra investment from foreigners could contribute to price rises because there were ''rigidities'' in the supply of housing that meant there were not enough new homes being built to meet demand.

''Given this sluggishness, part of any increase in foreign housing demand may spill over into higher dwelling prices, though the data suggest that this has not been into the parts of the market where Australia's first home buyers are typically concentrated,'' the RBA said.

Read more.



The corporate watchdog could cease to become a "proactive" regulator under Abbott government cuts to funding.

Greg Medcraft, chairman of ASIC, said his organisation would be forced to rely more heavily on whistleblowers, saying the cuts, outlined in the federal budget, would limit its ability to watch over corporations.

"What it means is that we don't have the luxury of doing as much proactive surveillance," he said.

"On reactive surveillance – where someone comes to us and says, 'we've seen a problem' – that is something we will continue to take action on.

"That doesn't mean we will pursue everything, because clearly, with less resources, we need to be more careful and smarter and even better at selecting the right matters to pursue."

Mr Medcraft said it was up to government to determine how strongly it wanted the market to be monitored.

"You can have an ASIC at $200 million, $300 million, $400 million. It's up to government to determine what level of resilience they want in financial systems. And we will do our best with that money," he said.

"That intelligence that we get from complainants, like whistleblowers becomes more important."

Mr Medcraft also defended his organisation against claims it failed to monitor the Commonwealth Bank financial planner scandal.

Read more.

Flirting with iron ... Wal King.
Flirting with iron ... Wal King. Photo: Marco Del Grande

The controversial former boss of Leighton Holdings, Wal King, has consolidated his recent flirtations with the iron ore sector by joining the board of Sundance Resources.

King will become non-executive deputy chairman of the company, which is trying to develop its Mbalam iron ore project on the border of Cameroon and the Republic of Congo.

King served 23 years as chief executive of the construction company until 2010, and has since attracted controversy over his handling of corruption allegations during his time at Leightons.

He is now a non-executive director of Coca Cola Amatil, and is non-executive deputy chairman of Ausdrill, and his first direct involvement with iron ore came in August 2013, when he was hired as a special advisor to Citic Pacific’s Sino Iron project.

His experience in construction and big projects will match Sundance’s ambitions, and the deputy chairman role flags him a potential successor to long-serving chairman George Jones.

Business credit is growing, but remains weak. Source: JPMorgan
Business credit is growing, but remains weak. Source: JPMorgan 

The latest private sector credit or lending data (+0.5% in April, for annual growth of 4.5%) is encouraging, particularly given that the lift in credit continues to be relatively broad-based, CommSec economist Savanth Sebastian notes:

  • It wasn’t surprising that housing credit continued to be the main driver but the rise in business borrowings is a huge positive – particularly in light of the recent improvements in labour market conditions and business hiring intentions.
  • Business conditions are healthy and it seems to be translating through to a lift in business borrowings, with annual growth coming in at 2.7 per cent – a 15-month high. At the same time, investor housing credit is growing at the fastest pace in 3½-years and will support the broader economic recovery.
  • But apart from taking out loans to buy investment properties, Aussie consumers remain reluctant to borrow. Personal debt is still down almost 9 per cent on the peak recorded six years ago and the level of debt effectively hasn’t budged in five years.
  • And the negative backlash and concerns over the federal budget is unlikely to result in a shift in the inherent level of consumer conservatism in coming months.
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Hong Kong’s Cheung Kong Group has struck a deal to acquire gas distributor Envestra in a $2.37 billion deal, trumping the rival offer from APA Group, which many expect to give up on the battle.

The $1.32-cash-per-share bid is being recommended by the independent directors of Envestra, who had previously backed the APA bid, Envestra said.

Gas pipeline giant APA, which already owns 33 per cent of Envestra, has a reputation of going aggressively after takeovers and coming out on top.

However, Cheung Kong’s all-cash offer is regarded as full and would require a significant increase in the offer from APA, which is based primarily on scrip.

Envestra shares are up 1.3 per cent at $1.367, while APA shares are up 0.9 per cent at $6.955.


Looks like we haven't seen the end of the iron ore sell-off yet: Dalian futures are down another 1.9 per cent at 689 yuan, pointing to a further drop in the spot price for the bulk commodity when it's set later today.

The spot price fell 1.1 per cent to $US95.70 overnight, as demand can't keep up with the additional supply coming out of Australia and Brazil.

‘‘We think it is mainly a supply story,’’ says Goldman Sachs analyst Christian Lelong. ‘‘Demand is clearly growing at a slower pace, but supply growth is particularly strong after years of overinvestment.’’

Consequently, iron ore miners are leading the sharemarket's losses today:

  • BC Iron: -3.3%
  • Atlas Iron: -2.8%
  • Fortescue: -2.5%
  • Arrium: -2.1%
  • Rio Tinto: -1.1%


The spot price (green) closely follows the futures (white), while Fortescue shares are holding up comparatively well.
The spot price (green) closely follows the futures (white), while Fortescue shares are holding up comparatively well. 
world news

Everybody wants to know what the next bubble is, and there's an easy way to tell: just watch where Harvard grads are going. Then short the hell out of that, The Washington Post’s Wonkblog writes:

It's called the Harvard MBA Indicator - though it applies to undergrads, too - and it's one part psychology, another part economics. The idea is simple enough: It's a bad sign when more Harvard grads go to Wall Street.

Harvard is a magnet for Organisation Kids who excel at colouring between the lines. After graduation, they want to do something prestigious, something remunerative, but mostly, as Kevin Roose points out, something that gives them new lines to colour between. That might be Silicon Valley, or it might be Teach for America - or it might be Wall Street, if, that is, the getting looks good.

And the getting looks best right before a crash. Which is when, the argument goes, the Harvard MBA Indicator hits its highest levels, like it did in 1987, in 2000-02, and in 2005-08.

See, as economist Hyman Minsky explained, financial stability is destabilising. The longer markets are calm, the more people plan on them staying that way. People take bigger risks and take on bigger debt because it doesn't seem like anything can go wrong - until it does, and all this leverage turns small losses into big ones due to forced selling from margin calls.

But this era of complacency can last a long time. And it's when Wall Street exerts its strongest gravitational pull on Harvard kids. The money keeps getting better and better, and it looks like it always will. All they have to do is follow the Excel-filled road laid out before them.

That's why the more Harvard grads that head for Wall Street, the worse a sign it is for markets. It usually means that the irrational exuberance is about to give way to rational panic.

The good news now, though, is that Harvard kids aren't flocking back to Wall Street in anywhere near the numbers that they did before the financial crisis - "only" 31 per cent of seniors will be working in finance or consulting next year; down from a high of 47 per cent in 2007.


South Australia’s Cooper Basin, an outback shale region that’s lured investments from energy giants such as Chevron and BG Group, is set for a flurry of mergers and acquisitions, according to oil and gas explorer New Standard Energy.

“There’s another wave of rationalisation to happen over the next six to 12 months,” Phil Thick, managing director of the Perth-based energy company, said. “Everybody is talking in the Cooper Basin.”

Shale explorers in the Cooper Basin are seeking to benefit from a forecast tripling in demand for natural gas on the east coast, driven by more than $60 billion in export projects in Queensland state.

Beach Energy, Senex Energy, and Drillsearch Energy are potential takeover targets, analysts at CBA said in a January report.

New Standard, backed by Houston-based Magnum Hunter Resources, has been talking to potential partners interested in its acreage, Thick said. Its existing partner,

Ambassador Oil & Gas received a $42 million takeover offer yesterday from Drillsearch.

The explorer has discussed bringing another company into its acreage as well as potential permit access swaps, Thick said. New Standard in December agreed to acquire 52.5 percent of the exploration license in the Cooper held by Ambassador.

“We’ve had multiple discussions with multiple players, and we will continue to,” he said.

A number of deals have already occurred in the Cooper Basin, including Drillsearch’s 2012 purchase of Acer Energy and Beach’s acquisition of Adelaide Energy.

After Drillsearch’s transactions, the Sydney-based company “is more likely to become the hunted rather than the hunter,” Nik Burns and Cameron Hardie, oil and gas analysts at UBS, wrote in a note yesterday.

New Standard also has assets in the U.S. and reached an agreement with Credit Suisse Group AG to arrange as much as $45 million in debt to fund its drilling plans in the Eagle Ford shale formation, according to a statement today.


Australand Property Group has announced it will allow Stockland to undertake due diligence after its property sector peer improved its takeover offer this week to $2.5 billion.

Stockland upped its offer for ­Australand to a final $4.35 per security in an all-scrip bid for the remaining shares in its smaller diversified property rival.

Australand's stock last traded at $4.30.

Under the revised proposal, Australand securityholders would get 1.124 Stockland securities for every ­Australand security held.

Stockland has also said it was prepared to make an alternative offer including a reduced scrip ratio, together with a cash component up to $250 million.

In April, Australand rejected Stockland’s all-scrip takeover bid at $4.20 per share.

That offer followed the Stockland acquisition of a 19.9 per cent stake in Australand in March after Singapore’s CapitaLand jettisoned its entire 39.1 per cent Australand holding. Since then, Australand has boosted its development pipeline through acquisition.

Australand has now upgraded its operating earnings outlook for the full year 2014. Its earnings per security for 2014 are now expected to increase by 20-25 per cent on 2013. That forecast compares its prior guidance of 17-20 per cent growth announced on 25 March 2014.

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