Resources Boost Ords

The Age

Tuesday April 20, 1999

ELI GREENBLAT

A rally in resource stocks helped the All Ordinaries Index to another record close yesterday, as higher commodity prices and a stronger Australian dollar renewed hopes of a recovery in the sector.

The All Ords finished the day 13.3 points higher, after a late rise in some heavyweight banking stocks helped lift the index off its low of 3098.5 points.

Resource-based indices topped the board, with the All Mining Index up 3.36 per cent, the Small Resources Index up 2.93 per cent and the 100Resources Index 2.32 per cent stronger for the day.

Mr Paul Xiradis, a director at the funds management group Ausbil Partners, said recent gains among key mining plays might represent the beginnings of a true recovery in commodity prices.

``I think this time around the recovery has something far more substantial behind it, which encourages me to believe that it will last for some time," Mr Xiradis said.

He said world economic growth was starting to pick up speed, and this would support the mining and resources sector. ``We are seeing industrial production growth in some economies, interest rates have been cut in Europe, and in the United States growth is stronger and better than what people had expected."

Mr Xiradis warned, however, that sustained levels of strong economic growth could have a downside for some sections of the stockmarket.

``There could be pressure on inflation, which may lead to an increase in interest rates, and if that happens there may be a sell-off in the interest rate-sensitive sectors like banks and insurance."

He said listed property trusts could also suffer if the Reserve Bank tightened monetary policy.

Analysts said volumes were heavy yesterday, with 635 million shares worth a total of $1.58 billion changing hands.

Rising stocks outnumbered decliners 831 to 666, while 452 were unchanged.

Mr Xiradis said overseas institutions, which had been short on resource stocks since 1998, were buying with a vengeance yesterday, with large-cap companies finding themselves back in favor.

BHP rose 39 cents, or 2.38 per cent, to $16.79 after touching a high of $17 during the day. Mr Richard Morrow, a director of the broking firm E.L. & C. Baillieu, said: ``People are starting to factor in blue-sky potential into the mining share's valuation."

Elsewhere in the sector, WMC rose 39.6 cents to $6.60, Rio Tinto firmed 13.2 cents to $26.13, MIM rose six cents to 88 cents and Western Metals put on 4.5 cents to 53 cents.

The early morning surge in resources hurt the Bank and Finance Index, brokers said, as many investors sold down their positions in the banks to buy a selection of mining companies.

The Bank and Finance Index hit a low of 7345.7 points in the first half of the day, but a late comeback saw the index end 1.8 points higher at 7409.

The market reacted positively to Tabcorp's grab for the Sydney gaming house Star City, with investors expecting Tabcorp to lift its offer. Tabcorp closed up 60 cents at $13 and Star City shares rose six cents to $1.88.

SUMMARY: The All Ordinaries rose 13.3 points yesterday, or 0.43 per cent, to close at 3113.1, with the resource and mining sector again leading the charge. The All Ords dropped into negative territory in the afternoon but strong demand from offshore funds lifted it 15 points, allowing the index to close above 3100 for the first time.