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Markets Live: Gold dives, TPG shines

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.


Global macro-economic worries overshadowed some positive domestic company news to push shares lower on Tuesday.

Concerns about the threat to financial market stability posed by Russian politics and Chinese monetary policy, compounded with lingering concerns about the effects of reduced United States stimulus, resulted in a broad-based sell-off.

The benchmark S&P/ASX 200 Index fell 9.8 points, or 0.2 per cent, on Tuesday to 5337.1, while the All Ordinaries Index also shed 0.2 per cent to 5351. Shopping centre operator Westfield Group led the bourse lower, shedding 2.1 per cent at $10.23.

Local shares fell sharply at the open, taking a negative lead from offshore after major equity markets in the United States, London and Europe all closed lower.

Following Monday's unexpected decline in the HSBC-Markit flash reading of China's manufacturing purchasing managers index, the comparable survey for the US and European manufacturing sectors for March also came in below expectation.

Asian markets provided mixed cues in the afternoon session with China's Shanghai Composite Index trading higher at the local close, while Japan's Nikkei was flat and Hong Kong's Hang Seng behind.

"We are holding a little bit more cash than ordinarily as we wait to see how the political situation in Russia pans out," Contango Asset Management portfolio manager Shawn Burns said.

The US and its closest allies have ousted Russia from the Group of 8 in retaliation for the annexation of Crimea from neighbour Ukraine.

"Another reason for caution is waiting to see how the Chinese government manages the process of de-leveraging the economy," Mr Burns said.

"China has an advantage over Western countries in that it has more control over market participants and access to stimulus tools if credit tightening creates too much of a drag on the economy," he said. "But there is still a risk of some more soft growth numbers before Chinese policy-makers get the balance right."

Read more.


And here are the best and worst for the day, led by two companies which reported solid earnings updates, while gold miners were the laggards.



Best and worst performing stocks in the ASX 200 for the day.
Best and worst performing stocks in the ASX 200 for the day. 

RBA deputy governor Phil Lowe has passed on the opportunity to describe the Australian dollar as "uncomfortably high", saying that the exchange rate has fallen as the mining investment boom has declined.

Mr Lowe, who was speaking at the Australian Securities and Investments Commission's annual forum in Sydney, said that markets had adjusted, allowing the local currency to decline as the terms of trade fell and as the investment phrase of the resources boom faded.

"Over the last two years, the terms of trade have come off and the prospect for mining investment has declined and mining investment as a share of GDP is obviously going to be decline over the next couple of years," Mr Lowe said in response to a question from Fairfax Media.

"The point that we have been making for some time is if the exchange rate is to continue to play a stabilising role as it has done so successfully over the years it will need to come down in time and we were drawing people's attention to that relationship.

"And in time, the market did adjust and the exchange rate has obviously come down. So that's the broad context in which we've been talking about the exchange rate."


market close

Local shares have been caught in a broad sell-off, with the ASX 200 index dropping 0.2 per cent to 5336.6 and the All Ords shedding a similar proportion to 5351.

Only 42 of the top 200 names advanced. Among the bluechips, Westpac was the biggest booster, adding 0.7 per cent, while BHP and Rio both gained strongly, up 0.5 and 1.4 per cent, respectively. Fortescue jumped 1.6 per cent.

Westfield (down 2. per cent) and Newcrest (-5 per cent) were the biggest drags on the benchmark index.

Gold miners were the worst performers, falling 5 per cent as a group, while telcos (up 0.3 per cent), consumer staples and metals and mining (both up 0.1 per cent) were the best.

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Scott Minerd, the chief investment officer of Californian-based, $200 billion investment manager Guggenheim Partners is one of several investors who have grown increasingly apprehensive about the risks of Japan’s extreme version of quantitative easing.

He’s shorting Japanese government bonds, which, at the 10-year point, yield just 0.60 of a percentage point.

It’s a position that has infamously been dubbed “the widow-maker” trade because Japanese bonds have refused to crash for over two decades.

He recalled the reaction to his trade when he discussed it with a group of hedge fund managers in Davos last year. “They said ‘welcome to the house of pain: it’s short, we have been living with it for 10 years and it never works’.”

But at a yield of 0.60 per cent, there’s not much “pain” relative to the risks Minerd believes Japan is creating. The prospects of Japan falling into hyperinflation are not to be ignored, he says.

“What we are experiencing in Japan and the risks [it poses] are unprecedented in the history of the world. There has never been a time in world history where every major economy is operating on a fiat currency.

“All of this money printing, whether it’s Japan, the US, Great Britain or Europe, is tantamount to filling your basement with gasoline and saying ‘everything is OK as long as no one strikes a match’. ”

“Once one country begins to spiral into an uncontrolled inflation environment, the prospect of contagion is extremely high.”

Read more ($).


The Reserve Bank will probably try to weaken the dollar, which jumped today to a three-month high against the US dollar, ANZ chief executive Mike Smith says.

The Aussie hasn’t declined along with commodity prices in spite of the currency’s links to raw materials, Smith told Bloomberg TV in Hong Kong today.

“Is it a little bit too high?” Smith said. “Probably it is and I’m sure the Reserve Bank governor will try to push it down a little bit.”

RBA chief Glenn Stevens is speaking at the Credit Suisse Asian Investment Conference in Hong Kong tomorrow.

The dollar is trading at 91.37 US cents, after rising to a three-month high of 91.58 US cents around midday.

For the record, RBA deputy Philip Lowe, who's currently speaking at the ASIC conference in Sydney, doesn't mentioned monetary policy in his speech, Bloomberg has just said. But there's always the ensuing Q&A.

The currency has been on the way up this month, as economic data fuels speculation the central bank will raise interest rates sooner rather than later. That has overshadowed concern commodity exports to China, Australia’s largest trading partner, will fall as the Asian nation’s economic growth slows.


Automotive Holdings will extend its car and truck dealerships and logistics business in two deals worth $184 million.

The Perth-based company, which entered a trading halt this morning, has struck a deal to buy Scott’s Refrigerated Freightways for $116 million and NSW car dealership Bradstreet Motor Group for $68 million.

The Scott’s deal will be funded from $71 million cash, $15 million of AHG shares and $30 million of finance leases, the company said in a statement to the ASX.

AHG managing director Bronte Howson said the acquisition would deliver $4 million a year in savings by the end of 2016 and make the company the biggest temperature controlled carrier in Australia.

Sydney-based Scott’s is forecast to generate sales worth $237 million this year and earnings before interest, tax, depreciation and amortisation of $25 million.

The Bradstreet deal will lift AHG’s network to 169 franchises across 96 dealerships in Australia and New Zealand.

Bradstreet’s dealerships are mainly in Newcastle and represent seven car makers: Toyota, Mazda, Holden, Nissan, Kia, Subaru and Great Wall.

“This is a strategic addition to our NSW dealership network,” Mr Howson said. “The dealerships operate from well-maintained properties on long-term leases and require no significant capital expenditure.

“They also complement our established Newcastle truck hub, giving AHG a very strong presence in the Newcastle region.”

The Bradstreet deal will be funded in cash. Both acquisitions are subject to the completion of due diligence.


Fortescue chief executive Neville Power has sought to reassure investors about the risks of falling iron ore prices on the company’s profitability, and the threat posed by increased mining rivals in China.

Speaking to a room of investors, at the Credit Suisse Asian Investment Conference in Hong Kong, Power played down the impact of falling iron ore prices and said the company’s profit margins were strong enough to withstand a further correction in the year ahead.

“There will always be short term volatility but not anything that we are concerned about long term,” he said. “The key with all of these resource projects is being well positioned on the global supply curve.

“We are very comfortable with how we are positioned. A $US100 a tonne iron ore price or sub $US100 a tonne is ok, particularly if we repay debt."

Credit Suisse head of Australian equity sales Chris Mayne said as long as the iron ore price stays relatively stable over the next 12 months, Fortescue should be able to meet its target of repaying $2 billion in debt by the end of this year.


Asia’s changing palate could help fuel Australia's next commodities boom as the unprecedented investment in the mining sector winds down, a global report by HSBC says.

The increasing demand for foods such as meat and dairy reflected the growing economies in Asia and other regions, with the expanding incomes of the new middle-class fuelling the shift in preference towards more high-quality foods.

Australia, as one of the world’s biggest exporters of soft commodities such as meat, dairy, wheat and sugar, is well-placed to benefit from the changing tastes of the growing middle-class in Asia - the fastest-growing part of the global economy, HSBC’s chief economist for Australia Paul Bloxham says:

  • Agricultural product prices have risen by far less than metals and energy prices over the past decade, but could be the next big story.
  • It may, in fact, be the case that food prices have the potential to outperform relative to metals and energy prices in coming years, as growing middle class incomes continue to boost demand.

The analysts estimate about 1.3 billion people could reach at least middle-income levels by 2030, while another 2.6 billion could achieve that income status in the following two decades.

This in turn could lead to a change in diet and a taste for finer foods, benefiting soft commodities exporters such as Australia, Brazil and New Zealand.



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wall st

Broker Morgans has significantly upgraded its valuation of biotech firm Impedimed, boosting its share price target by 50 per cent - from 32c to 48c.

With the stock trading at 22c now, that suggests some serious upside for the more adventurous investor (those prepared to invest in a stock the fortune of which can be determined by the flick of a regulator's pen).

Why the big upgrade? Because “the path is now clearly set down to secure the Category 1 CPT code for Impedimed's (IPD) bioimpedance device,” writes analyst Scott Power.

IPD's product aids in the clinical assessment of patients for the potential onset of secondary lymphoedema.

The Category 1 Current Procedural Terminology codes “are reserved for those procedures that have demonstrated clinical efficacy, widespread use and have US FDA clearance,” writes Power.

Such a clearance would assist Impedimed in growing its market for the device, and the code is expected to become effective from 1 January 2015.

“If achieved, and we believe it will be, this will be a major milestone for IPD,” explains Power. “We think the market opportunity is larger than our current modelling suggests, and have updated forecasts and valuation significantly.”

The new valuation of 48 cents is “based on the potential for an increased pace of clinical roll-out, and our view that IPD's device will be used to access the larger lower limb market,” writes Power, adding that “the key risk” is a delay in securing the CPT code.

Morgans’ analyst is not a bullish outlierCannacord has a “buy” rating and a target of 60c, while Wilson HTM has a similar recommendation and a 45c target.


Earlier this month, Coca-Cola sent out its annual report and proxy statement to shareholders.

The red-and-white report was relatively predictable. Until you get to page 85.

That’s the page that stopped an analyst who works for David Winters, a longtime money manager and founder of Wintergreen Advisers, in his tracks.

Doing a little quick math, the analyst determined that the company planned to award stock worth about $US13 billion to its senior managers over the next four years, based on the company’s current stock price. Getting out his calculator, the analyst estimated that between the proposed compensation plan and a previous plan, the company had allocated as much as $US24 billion toward stock-based rewards for its senior people.

I just couldn’t believe it,” said Mr. Winters, a longtime Coco-Cola shareholder with about 2.5 million of the company’s shares in his fund. “I was so stunned.”

So stunned that late on Friday, Mr. Winters sent a letter, which he released publicly, to Coca-Cola’s shareholders and its board. Coca-Cola has disputed some of his calculations, but Mr. Winters still says he sees the plan as excessive.

“We can find no reasonable basis for gifting management 14.2 percent of the share capital of Coca-Cola, worth $24 billion at today’s share price. No matter how well a management team performs, it is unfathomable that they would require such astronomical sums of money to provide motivation,” he wrote. “This compensation plan appears to place the economic well-being of management far ahead of the interests of the company’s owners.”

The compensation plan requires shareholder approval, so the company’s annual meeting, excuse the pun, could be a little carbonated.

Mr. Winters also sent a separate letter to one of Coke’s biggest and most influential investors, Warren Buffett, who controls 9.1 percent of the stock through Berkshire Hathaway’s holdings.

Coca-Cola, for its part, says Mr. Winters’s analysis “is misinformed and does not reflect the facts.”

Read more at The NY Times.

Hidden in the small print: Coca-Cola plans to give its senior managers $US13 billion worth of stock in the coming four ...
Hidden in the small print: Coca-Cola plans to give its senior managers $US13 billion worth of stock in the coming four years. Photographer: Carla Gottgens/ Photo: Carla Gottgens

Finance Minister Mathias Cormann’s decision to put the federal government’s proposed amendments to the Future of Financial Advice reforms on ice was the right one. But please, spare us the spin about needing to consider the changes more carefully, writes Smart Investor's James Frost.

According to the AFR, Senator Cormann justified the abrupt about face by saying he’d “just got in the job” and had “decided to pause the process on the FOFA regulation to enable me to consult in good faith with all the relevant stakeholders”.

But the changes he’s consulting on were first outlined by the Coalition in a 38 page response to the Parliamentary Joint Committee into Financial Services published in February 2012.

A document signed, and most likely written by, Cormann himself.

So for the architect to decide the changes haven’t been considered carefully enough, more than two years after they were tabled, comes off as being disingenuous at best and simply adds to the obfuscation that has surrounded the reforms.

Like many pieces of worthy legislation, the passage of the FoFA reforms have been marred from day one by an expertly run campaign that sought to confuse and unnecessarily complicate.

Read more at Smart Investor.


Predictions of more corporate defaults in China are unlikely to warrant the need for heavy handed stimulus in the world's second largest economy, says a leading expert on Chinese monetary policy.

Speaking at the Credit Suisse Asian Investment Conference in Hong Kong, a former member of the People's Bank of China, professor David Daokui, told a gathering of over 600 investors that more corporate defaults were needed in China to help "clean up the financial sector," but that a repeat of the huge 2008-09 stimulus package of 4 trillion Yuan "will never happen".

"Extra stimulus in the form of speeding up fiscal spending helps growth, however, that will not mitigate pressure on defaults because they are concentrated in a few regions," he said.

He added that additional stimulus, such as bond issuance, was necessary to help the economy succeed in its structural reform transition, away from an investment driven growth to an economy powered by consumption.

His comments come amid market speculation that the Chinese government may need to embark on further interest rate cuts or financial assistance to manage signs of a slowdown, particularly if it is to achieve its 7.5 per cent annualised growth target this year.

Monday's key HSBC flash manufacturing PMI data came in weaker than expected despite a modest pick up at the start of the year, prompting talk of further stimulus.

Read more


We've asked our chart guru, Richard Lie from Stockradar, to look at the dollar's recent rise from a technical perspective, and while he notes the currency could move a few cents higher in the short term, he says the overall trend remains downward.

Richard provided us with the attached chart of the technical picture. Here are some key points:

  • Parity has been the big psychological ‘line in the sand’ for several years now.
  • The breakdown below 95/97 US cents in March 2013 was a major development. We saw broken support become resistance on the pullback late last year, and it’s been downhill since then.
  • In the short term, a break of the ‘A-B’ trend line could project a rally back to resistance at 95/97 US cents. (Also, it’s not clear on the chart below, but a bullish inverse head and shoulders pattern has formed since the start of the year.)
  • Any decline below 87 US cents on a weekly closing basis would bring 80 US cents into play.
  • I expect the long-term trend to eventually reassert itself, for a decline to support at 80 US cents.


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Australia’s biggest investment bank, UBS, is facing an investigation by the Papua New Guinea ombudsman over its $1.239 billion loan to the country’s government to purchase a 10.1 per cent stake in listed gas developer Oil Search.

The ombudsman’s office has issued an order freezing any further progress on the loan until it completes its own investigations of the government’s surprise move to regain an ownership stake in Oil Search three weeks ago.

“The ombudsman commission is not asserting that there are irregularities involved nor does it want to interfere with any development initiatives of the national government, but to ensure compliance with all the relevant laws,” the PNG ombudsman was quoted as saying in Tuesday’s Post Courier.

The Australian arm of UBS provided a $1.2 billion loan comprising a $335 million bridge loan facility and $904 million collar loan facility to fund the 10.1 per cent stake in Oil Search.

Under the terms of the deal the investment bank will then advise the country on a sovereign bond issue to replace the bridge loan.

The loan has already sparked the sacking of PNG Treasurer Don Polye who refused to sign some of the documentation because of concerns about the impact of the loan structure on the country’s Budget and Sovereign Wealth Fund.

Mr Polye said in an interview last week that he had rejected the Oil Search deal because no due diligence had been done on it and it was not commercially viable. He said he could not sign off a loan when he believed it “will not be supported by any balance sheets, whether it be by [state-owned enterprises] or even by the state”.

Read more ($).


world news

The United States and its closest allies have cast Russia out of the Group of 8 industrialized democracies, their most exclusive club, to punish President Vladimir Putin for his lightning annexation of Crimea, while threatening tougher sanctions if he escalates aggression against Ukraine.

President Obama and the leaders of Canada, Japan and Europe’s four strongest economies gathered for the first time since the Ukraine crisis erupted last month, using a closed two-hour meeting on the sidelines of a summit meeting about nuclear security to project a united front against Moscow.

But they stopped short, at least for now, of imposing sanctions against what a senior Obama administration official called vital sectors of the Russian economy: energy, banking and finance, engineering and the arms industry.

Only further aggression by Mr. Putin — like rolling his forces into the Ukrainian mainland — would prompt that much-harsher punishment, the countries indicated in their joint statement, called the Hague Declaration.

Read more at the NY Times.


Goldman Sachs has lowered its forecasts for Japanese stocks, citing ‘‘the market’s unanticipated weakness and limited near-term catalysts’’.

The brokerage reduced its three-month target for the broad-based Topix index to 1200 from 1350 and the six-month forecast to 1300 from 1375, with the Topix today flat at 1162. The 12-month target was kept at 1450, with the brokerage saying it continues to expect earnings per share to rise 21 per cent in the fiscal year starting April.

The Topix has slumped 11 per cent this year as of yesterday, trailing all other major developed markets, after surging 51 per cent in 2013.

The losses are due to ‘‘a combination of overseas and domestic factors’’, Goldman Sachs says. They include weaker- than-expected US economic data, China growth jitters, the Ukraine crisis, Japan’s April sales-tax increase and disappointment that Prime Minister Shinzo Abe’s deregulation and structural reforms ‘‘may not deliver any substance’’, the note says.

Worries about continued foreign selling of Japanese shares have also weighed on the market. Foreign investors were net sellers of Japanese shares in the week through March 14, according to data from the Tokyo Stock Exchange.

Overseas investors sold 975 billion yen in Japanese stocks, the second-most on record after 1.12 trillion yen following the ‘‘Black Monday’’ stock-market crash in 1987.


There have been some encouraging signs that unemployment is close to its peak in this cycle, but to get the rate down where will the jobs come from?

Scott Haslem from UBS has looked at retail sales and other key economic data and overlaid them with the underlying sectors.

  • On that basis he thinks the retail, wholesale and hospitality sector could add up to 70,000 jobs this year, while the construction sector, that employs 1 million could add up to 80,000 jobs thanks to the recent strong gains in building approvals.
  • The mining sector might shed up to 20,000 jobs if capex numbers are anything to go by at while the manufacturing sector might still lose another 20,000 jobs.
  • The service sector employs 6.6 million people all up and Haslem says there’s a solid relationship between the sector’s PMI and employment growth. It suggests as many as 135,000 jobs will be created although there is some risk that the upcoming Budget might weigh heavy on the sector.

Haslem sees the economy creating as many as 170,000 jobs that would easily keep the unemployment rate at 6 per cent:

  • Indeed, our relatively simple analysis identifies a potential 240,000 jobs which could lower unemployment to 5.5 per cent by early 2015.

That’s not the base case for UBS, who have a 5.8 per cent forecast for the unemployment rate by the end of this calendar year. But those worried about where the jobs come from perhaps shouldn’t.


Investment has become less effective in generating growth in China, World Bank managing director Sri Mulyani Indrawati has told a conference in Beijing.

She did not elaborate in a speech in advance of the release of a report on China's urbanisation due later today.

Official data showed China's economy slowed markedly in the first two months of the year, with growth in investment, retail sales and factory output all falling to multi-year lows.

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