IG Markets - Afternoon thoughts

Across Asia, regional markets have started the New Year on the front foot following the positive leads from Wall Street. The Nikkei 225 is the best performer, up 1.6% as the improving global outlook drove demand Japanese blue chips. Elsewhere, the Shanghai Composite is 1.2% firmer while the Kospi and Hang Seng are up 0.4% and 0.6% respectively.

Locally, the ASX 200 has had a topsy turvy session. It opened higher in line with offshore leads before quickly succumbing to weakness in the financial space, which dragged the index into negative territory. However, since early afternoon it had edged its way back into the black and is currently 0.2% higher at 4752.7.

The sectors are fairly evenly split with strength among the material and energy sectors offsetting weakness in financial and industrial names. It’s been a volatile session to kick off the New Year; one minute we’d opened significantly higher and the next minute we were in the red. It looks like the low volume environment has certainly contributed to the wild swings in the index. A lot of market participants are still on holidays too; we’d expect the market to be vulnerable to volatile swings for a number of weeks yet. Volumes probably won’t return to more normal levels till the start of February.

More specifically, selling in the financial space seemed to be the main detractor early, in particular the insurers like IAG, QBE and Suncorp which were all down more than 2.5%. This flooding disaster in Qld and northern NSW is horrific and has no end in sight. There’s a lot of uncertainty hanging over these insurers in terms of their exposure to claims; the market hates uncertainty and hence hit them pretty hard this morning.

Elsewhere, the coal stocks held up relatively well considering most of them have already declared force majeure. It’s a bit of a catch 22 for the coal miners; on one had coal production has been severely affected but on the other, coal prices are rising due to the tightness of supply. Those suppliers who are selling at spot could end up selling their coal at significantly higher prices.

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