Falling Prices Hit Resource Stocks

The Age

Monday September 15, 1997

DAVID SAUNDERS

Trade on the sharemarket yesterday was marked by a sizeable switch into industrial stocks as falling commodity prices caused investors to turn their backs on the resources sector.

A strong performance by bank stocks after a rally on the bond market also lent a positive outlook to the market. The Banks Index rose 1.8 per cent.

National Australia Bank had the biggest jump, ending 53 cents higher at $20.33, a new record close. Its booming performance was also due to continued market speculation about a possible takeover bid, as well as solid offshore buying. As well, there were suggestions that Australia's biggest and most successful bank might extend its share buyback.

ANZ also rose strongly, closing up 16 cents at $10.46, while Westpac also rose 16 cents, to $7.28. Commonwealth Bank edged towards $16, ending 14 cents higher at $15.97.

NAB's rise accounted for five points of the index's overall rise of 22.9 points. The All Ordinaries closed at 2662.9.

Elsewhere, the switch out of resource stocks was evident in big jumps by blue-chip industrials. Chief among the gainers was the transport giant Brambles, which finished $1.42 higher at $28.72, a move of 5.2 per cent.

Brokers and transport analysts were unable to explain the jump other than the fact that Brambles appeared to be a beneficiary of some portfolio re-weighting and the general upbeat tone of the market.

Brambles' most recent news related to its friendly takeover bid for Cockburn Corporation at $1.93 a share.

The same bullish sentiment saw the property developer and contractor Lend Lease breeze past the $31 mark, ending 88 cents higher at $31.33.

Coca-Cola Amatil jumped 58 cents to $15.10, a rise of 4 per cent, while Foster's Brewing was up five cents to $2.70.

CCA's rise came as its chief executive, Mr Norb Cole, moved to reassure investors that the currency crisis besetting the Philippine peso would have only a limited impact on the company's profits for this year. He expected a better result than the recently reported 1996-97 figure. CCA acquired the Philippines Coke franchise from San Miguel this year.

Qantas held up well, closing steady at $2.91 on the day the airline announced it had entered into an arrangement to share terminals with the latest challenger to the domestic duopoly, Aussie Airlines.

Australian Gaslight was another to roar, ending 23 cents higher at $9.25, a rise of 2.6 per cent.

Among the retail stocks, Harvey Norman saw some positive follow-through on the market after its profit result last Friday. The furniture and electrical goods chain rose 17 cents to $8.50.

Davids rose 10 cents, 14 per cent, to 78 cents as investors warmed to the revamped management strategy of the food wholesaler and retailer, following a presentation by its new chief executive last Friday.

Coles Myer was the other major retailer on the rise, ending 15 cents higher at $6.58.

In contrast, the Mining Index fell 1.5 per cent as investors bailed out of resource stocks, scared off by falling commodity prices, which have been affected by suggestions that stockpiles may outweigh demand this year.

Last Friday on the London Metal Exchange, copper fell $US39 a tonne to $US2087 while nickel slipped $US115 a tonne to $US6435.

One of the worst hit was WMC, which slid 24 cents to $6.36, a drop of 3.6 per cent. The copper producer MIM fell eight to $1.54, nearly 5 per cent lower.

Two of the biggest resource stocks had little impact on the market's direction. BHP rose six cents while Rio Tinto slipped two cents to $20.35.

The gold exploration junior Metex jumped a cent to 16 cents after saying it had received excellent drilling results from its joint-venture project at Laverton in Western Australia, where it is in partnership with Delta Gold. Delta closed a cent down at $1.60.

Stockwatch

The ambitious oil explorer Energy Equities said yesterday it had secured a 35 per cent interest in a "proven" gas field off the coast of the Indian city of Madras.

The well is in the gas field PY-1, which contains a proven and probable resource estimated at 190 billion cubic feet of natural gas as well as other exploration potential, according to the company. Five out of eight wells have so far supplied gas at a daily rate of 13 million cubic feet.

Energy Equity is also negotiating to take part in power generation projects in the state of Tamil Nadu.

Energy Equity shares ended one cent lower at $1.51.

Money

Bond prices marched sharply higher yesterday, with yields briefly hitting record lows while the dollar traded in a narrow range to close little changed.

The currency ended at 72.30 US cents. But traders warned that it could fall further, possibly to test 71 US cents if market sentiment continued to favor a cut in interest rates.

The yield on 10-year bonds fell to a record low of 6.26 per cent - making it the first time in a decade that the Australian yield had fallen below the US rate - before closing at 6.30 from 6.41 on Friday.

Three-year bonds fell as low as 5.16 per cent before closing at 5.18.

IN SUMMARY: The sharemarket bounced back healthily yesterday after four straight days of losses. The All Ordinaries closed up 22.9 points at 2662.9 with the help of a strong futures market. The September contract on the Share Price Index ended 32 points higher at 2655 after briefly reaching parity with the All Ords. Banks and industrial stocks were the big winners, with the banks benefiting from stronger bond prices.