Asian markets have looked past the wobble in oil prices and Chinese data yesterday to push tentatively into the green. However, volumes are very low throughout the region, even lower than the pre-Christmas trade last week, so it is difficult to read too much into them. The major drag on markets today has come from the energy and materials sectors. Iran’s announcement that it will add 500,000 barrels a day of new supply within a week of sanctions being lifted, as well as ongoing weakness in China’s industrial profits numbers set off a renewed fall in commodities prices.
It’s uncertain what exactly set off the 2.6% fall in the Shanghai Composite. Industrial profits were still in negative territory in year-on-year terms, but there was a noticeable improvement from the previous month. It seems more likely that concerns over the steady stream of new IPOs sucking up capital, plus the coming end of the lockup period for stocks bought up in the July bailout by the ‘National Team’ led to the selloff. In any case, these concerns do not look to be weighing overly heavily on the Chinese markets today.
Looking at how Chinese stocks have performed since the Shanghai Composite hit its low on 26 August, it is the IT, real estate and consumer discretionary sectors that have really been driving the gains. Within consumer discretionary stocks, Auto stocks have been some of the top performers on the index, gaining over 80% this year. They were also the best-performing component of Sunday’s industrial profits figures, with profits of auto makers growing 37% YoY.
As far as the ASX is concerned, low volumes are good news. After the negative close in US markets, the ASX opened down, but strong buying of the banks and consumer stocks helped drive the index strongly upward throughout the day.
Concerns over oil and China weighed heavily on the materials and energy sectors. BHP Billiton Ltd (AX:BHP) and Rio Tinto Ltd (AX:RIO) were major drags on the index, losing 1.4% and 2.8%, respectively. Despite this, gold miners all were in positive territory, stemming the falls in the sector somewhat.
The Australian Retailers Association are reporting that consumers spent roughly A$46.8 billion in the six weeks leading up to Christmas, and are forecast to spend A$16.8 billion more through to 15 January. If these numbers hold up, then Australian retail sales are set to expand by over 4% year-on-year in both November and December – a noticeable pick up from the slowdown in Q3. These numbers helped rally consumer stocks, with consumer discretionary gaining 1.8% and consumer staples gaining 2.2%. With the strong Christmas sales season and the fallout from Dicksmith's (AX:DSH) stock liquidation being less significant than feared, Harvey Norman Holdings Ltd (AX:HVN) and JB Hi-Fi Ltd (AX:JBH) both gained 5.7% and 2.8%, respectively. The brow-beaten Myer Holdings Ltd (AX:MYR) also gained 3.5% to A$1.20 - back where it was trading in July.