Australian shares have hit fresh records for the fourth straight day, driven by record low interest rates and lingering enthusiasm over the United States and China signing a limited trade deal.
By 1pm (AEDT), the ASX 200 had jumped 0.5 per cent to 7078 points – while the broader All Ordinaries Index had risen by a similar level to 7194 points.
So far, Australia has been the best performing market among developed economies, having surged 6 per cent since the year began.
This was largely due to surging healthcare stocks – up 8.3 per cent, on average, since New Year’s Day.
Shares of biotech company CSL, in particular, hit a record of $302.78 on Friday, but have since pulled back slightly.
It remains the most expensive stock on the Australian market, having risen 8.8 per cent in the past fortnight – but has skyrocketed by 252 per cent in the past five years – and 6327 per cent in the past 21 years.
Meanwhile, the Australian dollar has slipped to 68.96 US cents.
Spot gold edged slightly lower to $US1551 ($2249) an ounce, while Brent crude oil has jumped to $US64.67 ($93.80) a barrel.
Volatile times ahead
Analysts are concerned the local market is getting increasingly overvalued, especially since the ASX 200’s price-to-earnings ratio is a very pricey 18.3.
“The problem when you have very high valuations is that when we see even the smallest shock to the system, it will resonate more significantly, and you’ll get heavier sell-offs,” said Pepperstone’s head of research Chris Weston.
Some of these shocks might include deteriorating US-China relations as they negotiate the second phase of a trade deal, worsening tensions between the US and Iran, or a downturn in Australian’s economy.
Alternatively, one trigger for an ASX sell-off could be next month’s corporate reporting season – when investors will re-assess whether their companies’ earnings have risen enough to justify their buy-in.
“Aussie stocks are on track for some uninspiring profit growth, battling a cautious consumer and a weak domestic economy, notwithstanding an unprecedented bushfire season that only reinforces those soft conditions,” said Saxo Markets strategist Eleanor Creagh.
“Profit headwinds for the banks, which make up a large portion of the index, are also adding to the patchy earnings picture.”
Best and worst performers
The best performing stocks on Friday include Costa Group (+5pc), medical device maker Polynovo (+3.3pc) and lithium producer Pilbara Minerals (+7.1pc).
Costa Group, the nation’s biggest fruit and vegetable grower, was the worst stock on the ASX 200 last year, tumbling by 64 per cent.
Its profit was downgraded four times in quick succession due to the impact of drought, high debt and oversupplying produce.
On the flipside, Australian farm chemical supplier Nufarm shares have dropped 10 per cent, making it the worst performer of the session.
This was after Nufarm said its core earnings will fall sharply (by half) in the first-half due to challenging market conditions and extreme weather.
It expects pre-tax earnings to be between $55 million-$65 million, when it reports results on March 25.
In addition, the mining giants BHP, Rio Tinto and Fortescue Metals have risen sharply (up 1-2pc).
The major banks (the Commonwealth Bank, Westpac, ANZ and NAB) have lifted between 0.4 and 0.6 per cent – also contributing strongly to the rally.
The Australian bourse is dominated by two sectors – financials and materials – which contribute 57.5 per cent of the ASX’s value.
Chasing record highs
It follows a strong lead from Wall Street, which ended its day at historic peak levels.
Markets hit new highs after Washington and Beijing signed a deal, on Wednesday (local time), that paused an 18-month long tariff war that had bruised financial markets and crimped global economic growth.
China is expected to boost its purchases of US goods and services in exchange for the Trump administration rolling back some tariffs, but several thorny issues remain unresolved.
“We believe the agreement underpins a positive outlook for risk assets, especially emerging market stocks,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
“But it is also important for investors to understand the limitations of the deal. So we see the deal as representing a partial calming rather than an end to trade tensions.”
Nevertheless, the Dow Jones index shot up 267 points, or 0.9 per cent, to 29,298.
The benchmark S&P 500 lifted by 0.8 per cent to 3317 – crossing the 3300-point threshold for the first time.
But the strongest gains were seen in the tech-heavy Nasdaq, which jumped 1.1 per cent.
Markets at 8:10am (AEDT):
- ASX SPI futures +0.5pc at 7,002, ASX 200 (Thursday’s close) +0.7pc at 7,042
- AUD: 68.99 US cents, 52.76 British pence, 61.94 Euro cents, 75.99 Japanese yen, $NZ1.04
- US: Dow Jones +0.9pc at 29,298, S&P 500 +0.8pc at 3,317, Nasdaq +1.1pc at 9,357
- Europe: FTSE 100 -0.4pc at 7,610, DAX flat at 13,429, CAC +0.1pc at 6,039, Euro Stoxx 50 +0.1pc at 3,774
- Commodities: Brent crude +1.3pc at $US64.82/barrel, spot gold -0.2pc at $US1,553.63/ounce, iron ore -0.1pc at $US96.36/tonne
- It was helped by Microsoft shares climbing to a record high ($US166.17) and Google’s parent company, Alphabet, soaring to a $US1 trillion market value for the first time ever.
Strong earnings season (so far)
US markets received their largest boost from Morgan Stanley shares (+8pc) after the investment bank posted a strong quarterly profit which smashed expectations – and in a show of confidence, raised its performance targets for the next couple of years.
Wall Street was also boosted by solid economic data, showing that retail sales rose for a third consecutive month (+0.3pc in December, in line with expectations).
Furthermore, the number of Americans filing claims for unemployment benefits dropped for a fifth straight week, last week, indicating the US labour market remained strong
“The consumer needs to be strong and evidence of that is retail sales, which came in pretty well after some slowing over the last several months,” said Tom Martin, portfolio manager at Globalt.
“We’re in that environment where investors say – we’ve got low yields and a potentially re-accelerating economy and an earnings growth that is looking to be somewhere between 5 and 9 per cent.”
Analysts expect profits at S&P 500 companies to have dropped 0.4 per cent in the fourth quarter.
However, full-year earnings for the current financial year are estimated to grow 9.6 per cent, according to Refinitiv IBES data.