Markets Live: China stimulus hopes boost shares
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Markets Live: China stimulus hopes boost shares

Shares end slightly higher, following regional markets up on hopes that weak Chinese manufacturing data will prompt Beijing to stimulate the economy.

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That's all for today, folks - we'll be back tomorrow from 9am.

Here's the full wrap of today's session.

Australian shares pushed higher, with the big miners gaining after a disappointing private survey of Chinese factory activity prompted speculation of stimulus to come. Bank stocks were also higher as Macquarie Group radically lifted its profit guidance.

In China, a preliminary reading of the March HSBC – Markit manufacturing purchasing managers index unexpectedly fell for the fourth month in a row, down 0.4 points to 48.1 . The gauge of factory activity, considered a key indicator for demand for Australia’s coal and iron ore, had been tipped to rise 0.2 points to 48.7.

But the local benchmark index, like the Shanghai Composite Index and Hong Kong’s Hang Seng Index, pushed higher amid speculation the disappointing data might prompt looser monetary policy from the People’s Bank of China. “We expect Beijing to launch a series of policy measures to stabilise growth,” HSBC China economist Qu Hongbin said.

However, other investors said the weaker manufacturing data was unlikely to concern China’s policy-makers.

“China’s manufacturing PMI has been flat-lining around 50 for a number of years now, but that is offset buy improvements in the services sector PMIs which are consistently posting around 55 points. This shift is consistent with the re-balancing of China’s economy that its policy-makers are trying to achieve.” Magellan Asset Management portfolio manager Dom Giuliano said.

“The change will lead to slower demand growth for raw materials over the next three to five years but it is important to remember that demand will still be rising.”

Resources giant BHP Billiton led the ASX higher, up 0.5 per cent to $35.74. Main rival Rio Tinto added 0.2 per cent to $61.50 while iron ore miner Fortescue gained 2.2 per cent to $5.09 as the spot price for iron ore, landed in China, was steady at $US110.70 a tonne.

Good day for Kathmandu shares after the retailer posted a jump in first-half profit. Here's the list of today's winners and losers in the ASX200:

AGL Energy has decided to challenge the competition regulator’s veto of its $1.5 billion takeover bid for large NSW electricity generator and wholesaler Macquarie Generation.

AGL said it had lodged an application with the Australian Competition Tribunal seeking authorisation to buy the power producer, saying the ruling by the Australian Competition and Consumer Commission can’t go unchallenged.

“The ACCC’s decision has significant implications for the future of the energy industry in this country and, in our view, can’t be left unchallenged,” AGL managing director Michael Fraser said.

The tribunal has three months to consider AGL’s application, which could be extended by a further three months.

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The sharemarket has closed slightly higher, recovering from a soft start amid speculation weak Chinese manufacturing data could prompt Beijing to stimulate the economy.

The benchmark S&P/ASX200 index rose 8.8 points, or 0.2 per cent, to 5346.9, while the broader All Ords gained 8.1 points, also 0.2 per cent, to 5362.1.

Financials led the rebound, rising 0.4 per cent, the same as materials, while industrials slipped 0.4 per cent and energy lost 0.1 per cent.

Credit Suisse is tipping a modest rise in iron ore after last week’s flash crash, providing an opportunity for bargain hunters.

CS analyst Matthew Hope says he expects a modest lift in prices as China's steel mills begin restocking.

But in a report out today he says ''very high'' crude steel growth of about 7 per cent would be needed to stop an oversupply of iron ore weakening the metal's price:

  • It is difficult to envisage another sharp down-leg to the near-term price.
  • On the basis of low mill stocks, it looks likely to us that the next move for the iron ore price will be upwards, provided steel production picks up from February's lows.
  • But looking into the second half we are not so sanguine.

Still, he says Australian iron ore equities are resilient, particularly Fortescue. He says Fortescue's break even price is the low $US70s a tonne, which would drop in to the $US60s if production costs continue to fall.

Hope says Fortescue's expansion has been fruitful, slashing costs by $US15 a tonne, and by 2015 its cost of production would be $US3 a tonne lower than BHP's:

  • FMG's key advantage is its modern port and rail which has all the benefits of 40 years in rail advances over the majors and much better efficiency.

Finance Minister Mathias Cormann says the government will temporarily freeze its controversial roll-back of Labor’s future of financial advice laws after months of criticism.

Senator Cormann, who took over responsibility for the policy last week, said he wanted to “have a round of conversations with all of the stakeholders first and then go ahead when everybody that was on same page is back on same page”.

“I’ve just got in the job and have decided to pause the process on the FOFA regulation to enable me to consult in good faith with all relevant stakeholders before pressing the go button on our changes,” he told The Australian Financial Review.

“We remain committed to implement the improvements to FOFA which we took to the last election as soon as possible.”

The Labor opposition has vowed to oppose the changes and is likely to raise the matter in Parliament today. Shadow Treasurer Chris Bowen described the decision as “encouraging” first step.

The reason why markets didn't slump in the wake of the weaker than expected Chinese manufacturing data is that it's put stimulus hopes back on the agenda, IG's Evan Lucas notes:

  • The HSBC numbers (flash China PMI) showed output, new orders, quantities (output and import) and prices (output and import) are all contracting at a faster rate than previous months. This means these investment trades are going to break down even faster as asset quality and fixed return see value collapsing - more defaults.
  • The PBoC has announced over the weekend that it is willing to accept these defaults and will look to continue its reform agenda of wringing out speculative lending, but this is going cause jitters.
  • The data also lends itself to being extrapolated out to GDP estimates, and this is where the Chinese Dragon is really struggling against the market bears. The print suggests that GDP could now be even lower than 7% once you factor in the industrial production figures from last week.
  • This gloom leads to a very predictable outcome - stimulation. It has already begun with the announcement that domestic demand is to be stimulated through the acceleration of the current state-produced infrastructure pipeline.
  • The perception of future stimulus is emulated in the markets today with regional majors in the Hang Seng, the Nikkei and the Shanghai Composite all turning green as the prospect of some form of intervention.
  • It is also likely to see the PBoC leaning on the exchange rate for longer.
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Here's a great read from the weekend by our China correspondent Phil Wen on why China's infamous ghost cities are more of a risk to the country's economy than they were several years ago:

It might be a humble third-tier city in one of the poorest parts of China, but by next year Guiyang will boast a seven-star hotel centred on a 67-storey, 400-metre-tall skyscraper.

More than 150 square kilometres of property floor space will be built and put on the market in the next three years, enough to house 3 million more people in a city with a population of just 4.3 million - prompting fears Guiyang will be home to China's next ghost city, alongside infamous examples in Inner Mongolia's Ordos and in Wenzhou.

Guiyang is but one example of the quixotic nature of centrally planned urbanisation. Just last week, China announced a sweeping plan to manage the next stage in one of the greatest migrations in human civilisation.

The central government expects 100 million more rural residents to move into cities by 2020, on top of 100 million former farmers already in cities but lacking access to basic services. This means hospitals and schools, roads and railways and, above all, housing - lots of it - need to be built.

But with China already grappling with the risks presented by its extensive shadow banking sector and surging local government debts, analysts are warning that the biggest demons lurk in its overheated property market.

Read more

Campaigns to get banks and big funds to drop their support for fossil fuel enterprises are gathering momentum and are likely to increasingly lead to reputational damage for coal miners, says an Oxford academic.

The campaigns are also likely to lead to increased financing costs for fossil fuel projects, according to Ben Caldecott, director of the Stranded Assets Program at Oxford University.

Caldecott, who is in Australia for two weeks for a series of lectures and meetings with investors and politicians about his research, said that moves by large funds to exclude coal stocks from their portfolios were spreading remarkably rapidly.

While the sale of fossil fuel stocks typically has little impact, the bigger effect would be through "stigmatisation" of the companies, hampering their operations within society.

"That makes it much harder for them to get capital, to hire people, and do all sorts of things in society," he said. "That is a very significant potential problem."

Read more