Resurgent banks lead bourse back to black after September slump

ANZ CEO Mike Smith at the ANZ Headquarters in Sydney ANZ CEO Mike Smith at the ANZ Headquarters in Sydney

ANZ CEO Mike Smith at the ANZ Headquarters in Sydney

ANZ CEO Mike Smith at the ANZ Headquarters in Sydney

In a dramatic turnaround, the Australian sharemarket has posted a gain for October, led by the banks, and is now 3.4 per cent ahead for the year.

The month began with shares spiralling towards a technical correction, having wiped-out all the gains of 2014 in a September slump.

The benchmark S&P/ASX 200 Index lifted 4.4 per cent in October, to 5526.6 points, while the broader All Ordinaries Index added 4 per cent to 5505 points, despite weak commodity prices weighing on the resources sector as the big four lenders rallied into bank reporting season. On Friday, the market added 0.9 per cent.

Local shares have shadowed the performance of equity markets in the United States, the focus on rising global interest rate expectations. On Wednesday, the US Federal Reserve announced a long-awaited move to conclude its program of extraordinary asset purchases, known as quantitative easing.

“It was good to see the US Federal Reserve end QE and sounding more positive about the economy,” Quay Equities head of trading Tristan K’Nell said.

“But while the US economy is improving, China, Japan, Europe and even Australia are struggling a bit and that is driving investors back in to safe yield plays,” he said.

“Eight weeks ago the big four banks all looked expensive, but after a hefty sell-off brought them back to fairer value investors started jumping back in a few weeks ago.”

ANZ Banking Group added 0.7 per cent to $33.50 on Friday after reporting a 10 per cent lift in full-year cash earnings to $7.12 billion, buoyed by continuing strength in its domestic mortgage lending business. The result was in line with an accidental disclosure that prompted a brief trading halt earlier in the week. ANZ recorded an 8.3 per cent gain for the month.

National Australia Bank kicked-off bank reporting season on Thursday, when it showed a 10 per cent fall in cash earnings to $5.18 billion and confirmed it is looking to sell its poorly-performing United Kingdom division. NAB shares added 7.5 per cent over the month to $34.99.

“We expect another clean, predictable high quality result from Westpac Banking Corporation when it reports full-year result on Monday,” UBS banking analyst Jonathan Mott said. In October, Westpac rose 8.2 per cent to $34.78.

“With NAB, ANZ and Westpac all due to trade ex-dividend in November they should continue to get a good run over the coming weeks,” Mr K’Nell said.

Commonwealth Bank of Australia, which will report quarterly earnings on Wednesday, rose 6.9 per cent over the month to $80.48.

Macquarie Group added 2.2 per cent to $61.17 on Friday as its interim profit jumped 35 per cent to $678 million, beating forecasts. The investment bank climbed 6.2 per cent over the past month.

Telstra Corporation closed October 6.2 per cent ahead at $5.63.

Crude oil prices slumped more than 11 per cent in October. Origin Energy lost 4.7 per cent to $14.27, while rivals Woodside Petroleum, Santos, Oil Search, and Liquefied Natural Gas also sold-off.

The spot price for iron ore, landed in China, edged up 1.2 per cent to $US79.82 a tonne over the month, but is still down more than 40 per cent since the start of the year. Most analysts predict that a supply glut will continue to weigh on the value of the steel-making ingredient.

“It is well understood that demand growth from China for iron ore is slowing. But as the biggest low-cost producers continue to ramp up volume, eventually most of the smaller players will get taken out of the market, leaving Rio Tinto, BHP Billiton, Vale and Fortescue Metals Group left standing and in a stronger position than ever,” Pengana Australian Equities Fund portfolio manager Anton Du Preez said.

Resources giant BHP Billiton edged up 0.3 per cent to $33.96, having told investors it has put some key US shale gas assets up for sale. Main rival Rio Tinto added 1.4 per cent to $60.41, while iron ore miner Fortescue Metals Group rose 0.6 per cent to $3.50.

Australia’s biggest gold producer, Newcrest Mining, shed 11.7 per cent to $9.32 over the month as the precious metal’s spot price slipped to $US1193.67 per ounce. At the annual general meeting on Friday shareholders heard the company predicts it can be cash flow positive this year so long as the gold price averages $US1250 per ounce. At the AGM the gold miner also received a “first strike” against its remuneration report.

Plasma product manufacturer CSL jumped 8.1 per cent to $80.19 in October after unveiling an acquisition of a Novartis division that will make it the second largest flu-vaccine provider in the world.

In another example of merger and acquisition activity that drove positive price action over the month, Spain’s Ferrovial lobbed a $1 billion takeover bid for Transfield Services. The engineering and services contractor was the best-performing stock in the ASX 200 over the month, climbing 28 per cent to $1.90.

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