IG Markets Afternoon thoughts 22/6/11

Across Asia, regional markets are mostly higher following the positive overnight leads from Wall Street and the vote of confidence in the Greek government boosted overall optimism. The Nikkei 225 is the top performer, up 1.4% while the Hang Seng and Kospi are 0.2% and 0.7% stronger respectively. Elsewhere, the Shanghai Composite is beating to the tune of its own drum, down 0.3%.

In Australia, the ASX 200 is currently 07% firmer at 4540, having earlier touched a session high of 4565. After a positive session on Wall Street and this morning’s favourable confidence vote in the Greek Government, the ASX has enjoyed relatively broad based gains. Among the advancers, the materials, industrials and energy sectors are currently the best performers. The financial sector is seeing more modest gains while the healthcare, property trusts and information technology sectors are all trading lower.

It’s encouraging to see the market adding to yesterday’s gains. It’s drifted slightly from the morning highs but that is to be expected given the concerns still weighing on the market. At least we’re not seeing the heavy, active selling that triggered Monday’s intraday reversal. In fact, yesterday’s afternoon rally was the first in a long time; the recent pattern has been for afternoon weakness.

That said, we may be seeing a bit of a ‘buy the rumour, sell the fact’ reaction across markets. It’s been very obvious in the EURUSD; perhaps a bit of that sentiment is flowing through to Asian equities. With the next catalyst in the Greek situation not until next week, it wouldn’t surprise us at all to see markets consolidate or pullback tonight, especially in the US where they have lodged four straight gains.

Nonetheless, there’s definitely plenty of bargain hunting going on as long-term, value oriented investors pick over the scraps of beaten up blue chips. Yesterday’s takeover bid for Foster’s could be the start of a pickup M&A activity as well; cashed up corporates that can look further out than three to six months would be seeing a lot of value in this market. We’ve already seen corporate activity start to gather momentum in the US and we think it will flow through to local names as well.

ENDS

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