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IG Markets, Afternoon Thoughts

Across Asia, regional markets are mixed in light pre-Christmas trade despite the modestly higher leads from Wall Street. With Japan’s Nikkei 225 clsoed for a national holiday, the Hang Seng was the top performer, up 0.2% on the back of strength among resources names. Elsewhere, it wasn’t as rosy with the Kospi and Shanghai Composite lower by 0.2% and 0.5% respectively.

Locally, the ASX 200 is significantly firmer, up 0.6% at 4808.30 and only just off the highs of the session. Gains are very broad-based with both the material and financial sectors 0.8% stronger. Elsewhere, both the consumer staples and discretionary sector are 0.5% and 0.6% firmer respectively despite all the negative press about the dismal Christmas shopping period to date. The energy sector is the other major mover, up 0.5% after Crude Oil pushed through the US$90/barrel level overnight on a big reduction crude inventory levels.

The market’s hit fresh six-week high this morning and for once is outperforming overnight leads. Underperformance versus global peers has been the major talking point this year; it’s nice to see some outperformance, even if it is too little, too late. One of the major differences today has been the performance of the financials; sentiment towards the sector has been improving in the US, but with little flow-on affect locally. It seems the tide has turned today.

From a technical perspective, the market is now sitting right at early November resistance of 4815. The market shouldn’t have too much difficulty moving through this level, although we could see some consolidating/profit taking in the shorter-term. It may not happen until volumes start picking up in early to mid January.

The big story today has been the official bid from Rio Tinto of $16.00 per share bid for Riversdale Mining, valuing the coal miner at $3.9 billion. The big question now will be whether or not we see someone else join the bidding. The obvious choice would be Brazilian giant Vale, who is already developing massive metallurgical coal deposits in Mozambique. Vale has the added bonus of already owning rail lines that could also be used for Riversdale coal, potentially meaning they could pay more due to larger synergies.

The fact that Rio hasn’t been able to get any of Riversdale’s major shareholders across the line indicates they are waiting for a better deal. Undeveloped coal assets of this size are highly sought after; if the assets are attractive to Rio, then you can guarantee other major players are doing their due diligence. We’d be surprised if $16 per share was the winning bid.

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