Investor update

You should always consult your Bridges financial planner before taking action on any recommendation given.

Information current as at 31 January 2010

After a stellar 2009 which saw the local market rebound over 30%, investors began 2010 with some profit taking, leading to a retreat of 6% - its largest decline since November 2009. International markets were also weak with the US (S&P500 -3.7%), Europe (Euro Stoxx 50 -6.3%) and Asia (MSCI APEX 50 -3.4%) all giving back the gains of December.  Increasing concerns around the regulatory environment in the US combined with higher than expected inflation risks emerging in China were the main drivers.  After reaching a high of $US0.93, the $A retreated to end the month at $US0.89.

Australian Shares

The Resources sector (-9.4%) was the weakest major group as commodity prices reacted to a potential shift in Chinese macro policy and a firmer US dollar; within this Energy (-9.8%) extended its relative downtrend to 8 months. Macro data (outlined above) pointed to a resilient local economy, which might explain the above-par performance of the Banking sector (-4.3%) – though consumer related stocks were mixed as weaker than expected sales figures from Woolworths suggested that retail conditions might be softer than the economic data suggests.  The approach of the reporting season prompted a number of companies to address earnings expectations: Commonwealth Bank (-3.0%) announced that it would beat expectations, as did Computershare (+1.4%) and Flight Centre (7.9%); however Worley Parsons lowered guidance (-18.9%).

Economic news

The Reserve Bank board did not meet in January, but expectations of a hike in February were underpinned by strong data on employment (unemployment rate falling from 5.8% in October to 5.3% in December), consumer confidence and retail sales, and building approvals. Moreover, inflation numbers showed a core rate outside the RBA’s 2-3% target band. US economic data provided mixed signals with jobs, home sales and retail figures disappointing while the Institute for Supply Management (ISM) survey continued to flag a manufacturing recovery. The US Federal Reserve maintained its expectation that rates would be held at “exceptionally” low levels for an “extended” period. Bond markets and the US dollar were firmer in January as risk appetite dwindled.
 

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