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Australian shares posted a third consecutive session of losses as investors remain cautious about heightened geopolitical risk and the re-balancing of growth in China. Locally, company reporting season delivered mixed results against a backdrop of continued low interest rates and an improving trade balance.
The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each lost 0.4 per cent on Tuesday to 5518.6 points and 5511.5 points, respectively, despite a rebound in United States equity markets on Monday night.
Fidelity Worldwide Investment asset allocation director Trevor Greethamsaid the past week’s sell-off in global equities has been a good opportunity to “buy on the dip” amid “excessively bearish” sentiment.
“The sell-off could continue if the geopolitical situation worsens but we find that buying during times of panic usually pays off, especially when the fundamental outlook is positive as it is now with monetary policies set to remain loose and global growth picking up,” Mr Greetham said.
Major markets around Asia were lower in the afternoon. In China, the HSBC services sector purchasing managers index for July dropped sharply to a neutral 50 points - its lowest reading since the survey’s inception in 2005.
As was widely expected, the Reserve Bank of Australia kept the official cash rate on hold at its historic low of 2.5 per cent for a 12th month.
Company reporting season was the focus for local investors. Engineering contractor Downer EDI dropped 4.2 per cent to $4.58 as annual profits for the past June financial year ticked higher but management forecast lower profits for the current financial year, citing “very difficult” conditions in the mining services market.
There has been a slew of disappointing results and outlook statements since the latest round of company reporting kicked off. But Alphinity Asset Management Johan Carlberg said he remains optimistic the local equity market could post a third year of double digital returns this financial year.
“Companies that are in the housing sector, benefiting from disruptive technologies, and those that are showing sensible capital management are likely to perform well this reporting season,” Mr Carlberg said.
And here are the best and worst for the day.
Cochlear is head and shoulders above the rest as investors aggressively bid up the stock following the company's annual profit report.
Atlas Iron gave up a fair chunk of yesterday's gains, while a couple of gold miners are among the bottom three.
Investors failed to follow a strong lead from Wall St and shares slumped on a day where some early profit reports came in mixed and the RBA stuck to its low interest rate rhetoric.
The ASX 200 and All Ords dropped 22 points, or 0.4 per cent, to 5518.6 and 5511.5, respectively.
Financials - including banks and insurers - weighed heaviest on the market, while consumer discretionary was the worst performing sector.
Healthcare was a bright spot after Cochlear surged 10 per cent, despite reporting a 29 per cent drop in annual profits, while CSL advanced 0.7 per cent.
BHP fell 0.8 per cent and was the single biggest detractor to the index.
Crown plunged 3.9 per cent.
ThankGod Agbagu views the paved roads and skyscrapers that have sprung up in Lagos, Africa’s largest city, as the signs of a brighter future.
“That’s development, progress,” the 30-year-old tailor said from Nigeria’s commercial capital. “I definitely see many opportunities out there. Things may not really get better in my lifetime but maybe it will for those that come after us.”
A two-decade surge in growth in Africa suggests the poorest continent is starting to come to grips with its challenges and has raised the prospect of the “African lions” emulating the “Asian tiger” economies in the 21st century. Africa’s advantages include vast untapped resources, a youthful population and an expanding middle-class. Offsetting these are rampant poverty and inequality, a rise in Islamist militant violence and appalling infrastructure.
Data collated by the African Development Bank support the premise of an Africa on the rise: Average life expectancy rose to 58 in 2011, from 37 in 1950, and primary school enrolment climbed to 77 percent in 2011, from 52 percent in 1990. Governance improved in 46 of 52 African countries in the 13 years through 2013, according to the Mo Ibrahim Foundation, which takes into account indicators such as safety and rule of law, human rights and economic progress.
“There’s nothing to stop Africa from benefiting from the reforms that we’ve seen, to capitalize on that going forward, do more and become a stronger, faster-growing, more inclusive region like Asia,” Stuart Culverhouse, chief economist at Exotix Partners, said.
The International Monetary Fund said July 24 it estimates sub-Saharan Africa’s economies will grow 5.4 per cent this year and 5.8 per cent in 2015, compared with 1.7 per cent and 3 per cent in the U.S. for the same two years respectively. The Washington-based IMF projected Chinese growth at 7.4 per cent this year and 7.1 per cent in 2015.Back to top
General news website The New Daily has been forced to raise a further $3 million in capital, less than six months after launching.
In February, it attracted $1 million each from health fund Hesta, timber fund First Super, and LUCRF Super, with an option to invest a further $3 million down the track.
But some of the site’s foundation investors - large superannuation funds - did not take part in the capital raising, and their ownership has been diluted.
A spokesperson for AustralianSuper confirmed that the super fund remained an investor, but had not contributed any further funding in February.
Sources said it was unlikely that either AustralianSuper or Cbus would contribute any further member funds to the start-up. A source at Cbus also confirmed the super fund was re-examining its investment in The New Daily after less than 12 months.
Fairfax Media understands some super funds are unhappy with the lack of personal finance content and original content, and its readership levels.
The New Daily has been marketed to the more than five million Australians who are members of not-for-profit, or industry, funds. But Nielsen figures show the site had a unique audience of 124,000 in June, and 106,000 in May, putting it just outside the top 100 news sites.
Reserve Bank governor Glenn Stevens said a month ago that the central bank wouldn't blind-side the markets with a cash rate hike.
Long before any thought was given to an increase in rates, it would "probably be sensible for the Board to cease references to a future ‘period of stability’," he told an audience in Hobart.
The Reserve's latest decision to hold the cash rate at 2.5 per cent and the announcement that accompanies it shows that the softening up period he referred to has not arrived.
The Reserve's statement announcing that rates are on hold - as they have been for a year - is very similar to the one it issued after its meeting a month ago.
Most importantly, the following statement is repeated:
"In the board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates."
On Stevens' Hobart formulation, that means that no move up on the rates is on the horizon.
Shoppers may spout a variety of reasons for picking the more expensive, name-brand packet of rolled oats, but a new study from the United States suggests it is simply because they don’t know any better.
And that little bit extra they spend adds up. In the US, consumers could save as much as $US44 billion by making the switch to generic products from brand names, researchers at the National Bureau of Economic Research (NBER) have calculated.
The study Do pharmacists buy Bayer? Informed shoppers and the brand premium found that informed shoppers, such as chefs and pharmacists, are more likely than regular consumers to take advantage of home brand goods.
For example, when it comes to pantry staples such as salt, sugar and baking powder, 80 per cent of well informed shoppers, such as chefs, buy home brand products for personal use compared to 60 per cent of the general population.
“It’s not to do with income, it’s to do with knowledge,” Associate professor of marketing at Melbourne Business School, Mark Ritson, said.
Professor Ritson said consumers who have high self esteem, are confident in themselves, their lifestyles and livelihoods will “quite happily find themselves drifting towards home brand labels”.
He said it was a myth that home brands are made for and enjoyed by low income consumers. Instead, it is information-rich shoppers conscious of their shopping basket mix - savings on home brand mean more to spend higher end name brands.
“If you look at blind tests, home brand products tend to outperform the branded products substantially,” Professor Ritson said. “You can be cheaper and better.”
The RBA has kept rates steady at 2.5 per cent, as expected by everybody.
At first glance not much in the accompanying statement that indicates any change of tone or position at the central bank's monetary policy setting team: "period of stability in interest rates".
The Aussie dollar has had a ho-hum reaction, dropping a touch.
Asia is still traumatized by the great financial crisis of 1997, when Thailand's devaluation of the baht set off a region-wide collapse in markets. Could it happen here again?
The mere question will strike many as odd, given Asia's rapid growth and progress in strengthening financial systems, improving transparency and amassing trillions of dollars of currency reserves. But Asia now faces three risks that could quickly undo those gains: Federal Reserve tapering, a Chinese crash and an explosion of household debt.
The danger of the Fed pulling too much liquidity out of markets has been well documented. So have China's rising vulnerabilities. Debt, though, deserves far more scrutiny. As economists survey the scene, Thailand once again tops the worry list. Debt there has risen rapidly, underwriting standards appear loose and nonperforming loans are rising.
Thailand has plenty of company in Asia, Oxford Economics warns in a new report. Financially conservative Singapore has seen credit growth in the last six years exceed that of the US in the run-up to its 2008 subprime meltdown.
Several nations now have private-debt ratios of between 150 per cent and 200 per cent of GDP.
They include the higher-income set -- Australia, Hong Kong, South Korea and Taiwan -- as well as China, Malaysia, Thailand and Vietnam. Even where debt levels are lower, Indonesia and the Philippines, the trajectory is troublesome.
"Debt surges of this kind often end badly," says Oxford economist Adam Slater.
Even more worrisome than the absolute levels of debt, says Frederic Neumann, Hong Kong-based co-head of Asian economic research at HSBC Holdings Plc, is the pace of increase.
For all its rapid growth and buoyant markets, Asia isn't as healthy as it appears on the surface, and might take on even more debt to support growth. As leverage exceeds the peak before the 1997 crash, is a sharp correction on the way?Back to top
Thousands of Bluestone Global workers have lost their jobs after the mining services provider went into administration and its subsidiaries into liquidation.
The ASX-listed company issued a statement saying it was "unsuccessful in securing the necessary shareholder support to repair its balance sheet" and have been left with no option but to go into administration.
While the parent company goes into administration, the majority of its subsidiaries, including hire firm ResCo, will be liquidated.
ResCo is a major provider of mining services in the NSW Hunter Valley region.
KordaMentha was appointed administrators and liquidators late on Monday.
Liquidator Craig Shepard says every step is being taken to find new jobs for the 3500 contract workers and 180 full-time staff who have been retrenched from Bluestone and its subsidiaries.
"Because of the nature of their on-hire employment contracts, the Bluestone workforce should find it easier to be re-engaged to do the same work," he said.
KordaMentha is also arranging the payment of all employees' entitlements, including unpaid wages and statutory severance entitlements.
Bluestone had been seeking merger opportunities to improve its profitability as well as additional investor funds to repair its balance sheet since May.
However, the company says these efforts failed and the board had no choice but to appoint administrators.
Launceston-based infant formula and baby food maker Bellamy’s Australia has been embraced by investors at debut on the Australian Securities Exchange.
The stock surged as much as 34 per cent after listing at 11am, and recently traded 27 per cent above the $1 per share offer price at $1.27.
On the same morning the $25 million initial public offer began trading, the company announced it has received accreditation to register a new company in China, Tatura Milk Industries.
“The recent certification of TMI will allow Bellamy’s to immediately re-commence exporting to China and strongly positions the company to effectively execute its growth strategies in China, being only one of a handful of companies certified organic by both Australian and Chinese authorities,” managing director Laura McBain said.
Lead brokers Wilson HTM marketed the float as a way to gain exposure to the growing worldwide fashion for certified organic foods and an increased appetite for dairy products in Asia.
Investors were also attracted by forecasts for an annual dividend yield of 1.6 per cent - unusual for a "growth stock" IPO - based on a payout ratio of 30 per cent. Shares were priced at 19 times pro forma estimated earnings for the current financial year.
Quality Life, the family company of BRW Rich Lister Bruce Neill, has emerged as a substantial shareholder controlling 8.62 pert cent. Hobart based Mr Neill founded financial services company Select Managed Funds, which he sold for scrip to the Australian Wealth Management in 2006. He made a fortune when that company was acquired by IOOF in 2009. More recently he has been in the race horse breeding business.
Fund managers that are understood to have signed up for a parcel of shares include Wilson Asset Management, Schroders, Thorney Group, and Karara Capital.
Seven West Media chairman Kerry Stokes says it is possible the free-to-air television, digital, newspaper and magazine company could own a radio network before the end of its newly-signed deal to broadcast the next three Olympics Games.
Seven and the International Olympics Committee confirmed the deal for the 2016 Rio de Janeiro Games, the 2018 Winter Games in Pyeongchang, South Korea, and the 2020 Tokyo Games.
The agreement with Seven encompasses the rights for free-to-air television, pay television, radio, digital, mobile and Hybrid Broadcast Broadband TV.
Asked by Fairfax Media if it was possible that Seven could own a radio network within the length of the deal, Mr Stokes said: “Yes it could.
“I don’t know if we will, it’s up to (Seven chief executive) Mr Worner, but it’s possible.”
Mr Stokes said he saw potential synergies in owning a radio network and a free-to-air television network.
Seven could buy radio stations in all major metro markets aside from Perth where it owns The West Australian newspaper.
Qantas has cut another 97 jobs in its engineering department as part of its broader program of 5000 job losses over three years.
The airline told 47 aircraft maintenance engineers in Sydney and Melbourne that their roles were redundant, although it has offered them the opportunity to apply for an equal number of vacant roles in Brisbane and Perth if they are willing to relocate.
Qantas has more demand for work in its Brisbane and Perth maintenance hangars than in Sydney and Melbourne as part of a broader restructure of its engineering department.
It also has less work in total as it retires ageing 767 and 747 aircraft.
Modern aircraft require less maintenance than older aircraft.
The airline has also told employees in engineering planning, administration and support that it plans to cut 50 positions in those areas. In the first instance, it will offer voluntary redundancies to mitigate the need for compulsory redundancies.
“We’ve been saying for some time that our engineering workload is reducing as we continue to retire older aircraft and introduce new aircraft which require less maintenance,” a Qantas spokeswoman said.
“The simple fact is we need fewer engineering employees as the workload reduces.”
Growth in China's services sector slowed sharply in July to its lowest level in nearly nine years, a private sector survey shows, indicating a recovery in the broader economy is still fragile and may need further government support.
The Aussie dollar weakened marginally from around US93.3c to US93.2c on the news, after being largely untroubled by earlier Australian trade data.
Weakness in new orders was also seen in China's official services report at the weekend, which showed activity slipped to a six-month low. Both surveys contrast with other data in recent weeks which showed the economy was regaining momentum thanks to a spate of government stimulus measures.
The weaker readings in services, which account for about 45 per cent of gross domestic product (GDP), raise the question of whether Beijing needs to do more to support growth, particularly in the rapidly cooling property sector.
The services purchasing managers' index (PMI) compiled by HSBC/Markit fell to 50.0 in July from a 15-month high of 53.1 in June, the lowest reading since November 2005 when the data collection began.
The survey indicated a stagnation of service activity last month, as a reading above 50 in PMI surveys indicates an expansion in activity while one below the threshold points to a contraction.
In a sign that economic uncertainty has made companies more reluctant to spend, a sub-index measuring new business growth hit a 68-month low of 50.3 in July.
Stock markets in Hong Kong and Shanghai turned negative after the survey was released, while most other Asian markets extended modest early losses.
The unexpected weakness in services comes after two separate PMI surveys last week showed China's factory sector posted its strongest growth in at least 1-1/2 years in July, adding to hopes that the economy was building up steam again after a weak start to the year.
"The weakness in the headline number likely reflects the impact of the ongoing property slowdown in many cities as property related activity, such as agencies and residential services, see less business," said HSBC's China chief economist Qu Hongbin.
"Today's data points to the need of continued policy support to offset the drag from the property correction and consolidate the economic recovery," Qu said.
A similar survey by China's National Bureau of Statistics found non-manufacturing activity slowed to 54.2 in July from 55 in June as new orders rose at their weakest rate in at least a year. The official PMI is weighted more towards large state-owned firms.Back to top
Warren Buffett has never had so much money to spend.
Cash at his Omaha, Nebraska-based Berkshire Hathaway rose past $US50 billion ($53.6 billion) at the end of June, the first time it finished a quarter above that level since he became chairman and chief executive officer more than four decades ago.
The stock market hasn’t helped an investor who has said he likes to wait for the “fat pitch,” an opportunity to buy a company at a price promising favourable returns. Even after last month’s decline, the Standard & Poor’s 500 Index has almost tripled from its 2009 low. Berkshire’s size has also become a hindrance because few businesses are big enough to merit Buffett’s attention.
“I don’t think the list of his ‘fat-pitch’ companies is all that exhaustive,” said David Rolfe, who oversees $US8.6 billion including Berkshire stock as chief investment officer of Wedgewood Partners.
Buffett, 83, has struck some of his biggest deals in the last few years, adding to the earnings Berkshire already gets from operating businesses including auto insurer Geico and railroad BNSF, which was acquired in 2010. Second-quarter net income rose 41 per cent to a record $US6.4 billion, the company said in an August 1 regulatory filing.
Australia’s seasonally-adjusted trade deficit narrowed by $320 million, to $1.7 billion, in June as lower imports and higher rural exports and volumes helped offset soft prices for iron ore and other minerals.
The Australian Bureau of Statistics said the country exported $26.6 billion worth of goods and services in June, up slightly on the seasonally-adjusted total for May. Imports were down 1 per cent, from $28.5 billion in May to $28.3 billion in June.
In trend terms, the trade deficit widened from $1.1 billion to $1.6 billion, as exports slumped 2 per cent month-on-month and imports were virtually flat.
This is the third monthly deficit in a row, and reflects the fall in prices for bulk commodities such as iron and coal, Australia’s two biggest exports. Oversupply has put the price of both these minerals under pressure this year.
The deficit has widened from $780 million since April. The decline in the value of exports over the three months will have put a drag of gross domestic product for the second quarter.
However, economists had been forecasting a seasonally-adjusted deficit of between $2 billion and $3 billion.
Public opinion has been divided very starkly indeed by the [British] government’s invitation to energy companies to apply for licences to develop shale gas across a broad swathe of the United Kingdom.
On the one hand, many environmental and conservation groups are bitterly opposed to shale development.
Ranged against them are those within and beyond the energy industry who believe that the exploitation of shale gas can prove not only vital but hugely positive for the British economy.
Rather oddly, hardly anyone seems to have asked the one question which is surely fundamental: does shale development make economic sense?
My conclusion is that it does not.
That Britain needs new energy sources is surely beyond dispute. Between 2003 and 2013, domestic production of oil and gas slumped by 62 per cent and 65 per cent respectively, while coal output decreased by 55 per cent. Despite sharp increases in the output of renewables, overall energy production has fallen by more than half.
A net exporter of energy as recently as 2003, Britain now buys almost half of its energy from abroad, and this gap seems certain to widen.
The policies of successive governments have worsened this situation.
The “dash for gas” in the Nineties accelerated depletion of our gas reserves. Labour’s dithering over nuclear power put replacement of our ageing reactors at least a decade behind schedule, and a premature abandonment of coal has taken place alongside an inconsistent, scattergun approach to renewables.
Those who claim that Britain faces an energy squeeze are right, then.
But those who claim that the answer is using fracking to extract gas from shale formations are guilty of putting hope ahead of reality.
The example held up by the pro-fracking lobby is, of course, the United States, where fracking has produced so much gas that the market has been oversupplied, forcing gas prices sharply downwards.
The trouble with this parallel is that it is based on a fundamental misunderstanding of the US shale story.
We now have more than enough data to know what has really happened in America.
Management optimism for a ‘‘sugar hit’’ to the share price of Downer EDI thanks to a buy-back which was outlined with this morning’s year-to-June results - which also flagged lower results in the year ahead - proved illusory, with the shares down 2.7 per cent at $4.65 in mid-morning trading.
Addressing analysts, management said its shares are undervalued relative to its peers.
More to the point, it wants a higher share price to give it some currency to play with as it looks at reeling in some M&A targets over the next year or 18 months.
The continued tough outlook for the mining sector, where margins continue to be squeezed, is the reason for it tipping a $205 million profit in the year to June, 2015, down from the $215 million profit booked in the latest year - see post at 9:16.
The Reserve Bank of Australia is expected to stand pat later today, but there will be plenty for Governor Glenn Stevens and the central bank board to consider.
A decision to hold the official cash rate on hold will make it 12 months since the RBA took rates to a record low of 2.5 per cent.
The key item economists will be looking out for in Mr Stevens' statement on the monetary policy decision will be the final paragraph, which last month stated: "On present indications, the most prudent course is likely to be a period of stability in interest rates."
"I think there’s some risk that that it is either amended or omitted," Deutsche Bank chief economist Adam Boyton said.
"The reason why I say that is the Governor has mentioned a couple of times over the past month that long before the bank thinks about changing policy it’s probably sensible to amend that wording largely so that the market doesn’t get too attached to it," Mr Boyton said.
But a change in the wording of the RBA statement does not signal an imminent change in policy, with the central bank still likely to keep interest rates on hold for some time.
"Although financial market traders hate it, I think the outlook remains an extended period of stability in interest rates," Bank of America chief economist Saul Eslake said. "I don’t expect the Reserve Bank to alter the crucial last paragraph of its post meeting statement."
Although the Australian dollar remains stubbornly high, Mr Stevens and the RBA board are unlikely to again attempt to talk down the currency, instead waiting for the US economy to improve and the US Federal Reserve to complete tapering its stimulus program and raise rates.
However, the Fed, while expected to begin assessing when it should raise interest rates, has given no clear indication of when it will do so, leaving the RBA and the Australian dollar waiting on the US central bank.Back to top