Australian market holds the line as bank stocks are supported by growth in housing finance
By Ric Spooner (Chief Market Analyst, CMC Markets)
12.55 AEDT, 12 November 2012
China’s October export performance and Australia’s housing finance growth both serve to remind investors that there are
plenty of “green shoots” for world economies at present and that the US “Fiscal Cliff” represents a risk in both
directions. Improved consumer sentiment, signs of life in housing markets and a levelling out in China’s economy all
potentially form a decent base for improved markets in 2013 if US politicians are able to negotiate a confidence
building solution to the fiscal problem.
The Australian stock market has outperformed the US markets since the Presidential election and this may continue under
present conditions. While a major fiscal drag on the US economy would reverberate through all world economies, the
recent decline in US markets also reflects positioning for the risk to US investors posed by the potential for removal
of tax concessions on dividends and capital gains as part of any US fiscal agreement.
Today’s housing finance figures are encouraging for those investors seeking refuge in bank dividend yields in recent
months. Loan growth follows an uptick in building approvals over the past couple of months and increases the probability
that bank stocks can continue to provide investors with an attractive yield while at the same time achieving moderate
earnings growth.
The August peak at 4403 remains a key support level for the S/ASX 200 index. While the market remains above this level, the chances are that the current correction will be
relatively shallow and the impact of fiscal cliff nerves relatively contained. A break below that level would indicate
more serious investor pessimism and a correction of the whole rally from the June low at 3985. That could see a test the
200 day moving average at around 4280.
ENDS