ASX drops but bounces off lows

The big four banks fell on Monday. Photo: Louie Douvis Australian stocks fell yet again on Monday, although not as badly as many had feared, with a widespread drop in the energy sector offset to some extent by gains in consumer, industrial and telecommunications stocks.

The main corporate news for the day was Woolworths’ announcement that it would either sell or wind up its troublesome Masters hardware business, news that was received enthusiastically by investors.

The ASX had a terrible lead coming in to Monday morning, after the Dow Jones plummeted 2.4 per cent on Friday night, aided by further hefty falls in Brent crude oil, and the Australian market was down 1.8 per cent in early trade, with the benchmark S&P/ASX 200 index reaching a low of 4803 points in early trade.

But the market quickly bounced off its lows, as losses in the big four banks were pared, with the ASX 200 finishing 0.7 per cent lower at 4858.7 and the All Ordinaries 0.7 per cent lower at 4911.8.

“Monday has been a positive surprise, we are relatively outperforming,” Aurora Funds Management senior portfolio manager Sheridan Hure.

“That largely seems to be [down to] the news out of Woolworths and the potential benefits for Wesfarmers.

“Telecommunications is also holding up very well, as are industrials and consumer staples and even the banks are coming back.”

The energy sector was down 3.4 per cent as Brent oil crashed to under $US28 per barrel, although the commodity later retraced some of its losses.

“The ASX 200 is teetering above the 4797 level where it would enter technical bear market territory, having seen a 20 per cent decline from its high in March 2015,” said IG market analyst Angus Nicholson.  “Although, at this point, technical definitions seem fairly redundant. The market has had a terrible performance over the past six months, irrespective of a 60 point difference in the index.

The energy sector suffered the steepest falls after the removal of sanction on Iranian oil exports and China’s equity sell-off on Friday pummelled the oil price. Energy stocks lost 3.4 per cent, with Santos plunging 8.4 per cent to $2.63. Woodside shed 2.6 per cent to $26.29 and Oil Search fell 5 per cent to $6.01.

Among blue-chip stocks, BHP Billiton fell a further 2.9 per cent to $14.63 while Rio Tinto lost 2.1 per cent to $38.69. Telstra, however, put on 0.9 per cent to $5.38.

The banks fell: ANZ by 2 per cent to $24.41, Commonwealth Bank by 0.6 per cent to $78.39, National Australia Bank by 1.2 per cent to $26.69 and Westpac by 1 per cent to $30.77.

Woolworths shot up 4.4 per cent to $23.65 after announcing it would pull the plug on its loss-making home improvement business Masters after buying out joint venture partner Lowe’s Companies.

Woolworths chairman Gordon Cairns said that Australia’s largest retailer would sell or wind up the home improvement business, which has lost more than $600 million over the past four years.

The decision follows the completion of a strategic review of the home improvement business, which includes Masters and Home Timber and Hardware, and Lowe’s move to exercise its put option. “Our recent review of operating performance indicates it will take many years for Masters to become profitable,” said Mr Cairns.

Wesfarmers, by contrast, said they would be ramping up their exposure to hardware.

The company said it expects to complete the $705 million acquisition of UK home improvement chain Homebase in the first quarter of 2016 after gaining unanimous approval from the board of its parent, Home Retail Group.

The deal comes after Wesfarmers said on January 14  that it had made a provisional bid for the chain.

The conglomerate has said plans to roll out its Bunnings hardware brand to the UK within five years. Wesfarmers lifted 2 per cent to $40.12.

Other stocks in the consumer space also benefited, including Metcash, which soared 7.9 per cent to $1.63; JB HiFi, which rose 1.1 per cent to $21.74; and Myer, which gained 1.5 per cent to 99 cents.

Sentiment was also assisted by a big turnaround in Chinese shares, which opened sharply lower only to trade well higher in late Monday trade.

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