Australian shares rose 0.2 percent on Monday, reversing early weakness as retailers rallied on a modest rebound in monthly retail sales, and investor confidence was boosted by better-than-expected Chinese imports in December. Chinese imports of Australian goods grew a brisk 42 percent in December while China recorded a deficit with Australia of $3.8 billion, the biggest shortfall of 2010.
A broad range of stocks managed to end higher, including Newcrest Mining, Qantas Airways and energy firms Santos and Woodside Petroleum. Still, sharemarket volumes were light at less than two-thirds recent levels, reduced as Japanese markets remained closed. "There was little in the way of regional lead to follow. It seems that there is no New Year's flurry of activity happening with no surge in volume being seen," said David Land, analyst at CMC Markets.
The benchmark S&P/ASX 200 index advanced 7.3 points to 4,712.3, according to the latest data. It fell 0.4 percent on Friday. New Zealand's benchmark NZX 50 index rose 0.2 percent to 3,324.1. Retailers rose after November retail sales data showed a 0.3 percent rise after a revised 0.8 percent drop in October.
Department store Myer gained 3.3 percent to A$3.49 while rival David Jones rose 2.7 percent to A$4.62, a three-week high close. JB Hi-Fi gained 2.7 percent to A$18.07, its highest in almost a month. After steep increases in mortgage rates last year, retailers have said trade is currently patchy and hard to read, varying day to day.
Bank stocks mostly finished higher, led by National Australia Bank with a 0.4 percent gain, although Australia and New Zealand Banking Group said after the close of trade that earnings growth in financial year 2011 could be cut by 1.2 percent if the Australian dollar were to remain at current levels. Investors said the early part of 2011 could be a continuation of last year, when the market fell 2.6 percent on concern over European debt, local interest rate rises and weak consumer demand, and the strong currency.
"Growth is likely to be underwhelming because monetary conditions are tight. If monetary conditions remain tight, the market should be flat-to-down," said Adnan Kucukalic, analyst at Credit Suisse. "To believe in sustainable upside for the Australian market, we must believe that the RBA (Reserve Bank of Australia) will eventually ease in 2011 but it is still talking about rate hikes. So in the short term, it is hard to see much relief for domestic demand, and this could weigh on equities," he said.
Futures markets now put a 50-50 chance on a hike in Australia's official cash rate to 5 percent by June and are not fully priced for a rise by October. Kucukalic also said the relative value of corporate bond yields indicated "a scenario where the market struggles to outperform cash." "We need to be defensively inclined for now, but on the look out for buying opportunities in domestic, rate-sensitive sectors, such as discretionary retail and banks, which have underperformed recently and may continue to do so in the short-term," the Credit Suisse report said.