A haulage truck arrives at Rio Tinto's Dampier Salt Ltd
production facility at Port Hedland, Western Australia,
about 1600km north of Perth. Rio's portfolio includes iron
ore, gold, diamonds, copper, titanium, uranium and zinc.
Photo by Reuters.
China's changing economic fortunes and cuts in
Australia's interest-driving cash rate by its Reserve Bank are
expected to buoy the Australian stock exchange as investors
seek improving dividend yields.
Research by Craigs Investments Partners said while risks
remain and investors have to be ''selective'', medium-term
prospects are ''optimistic''. Stock valuations are reasonable
and dividend yields look ''increasingly attractive''.
Australia's cash rate had been slashed from 4.75% 18 months
ago to 3% and more cuts were expected, meaning bank deposit
rates had also fallen, Craigs broker Peter McIntyre said.
''Aside from the last few months, the Australian sharemarket
has been a difficult place to invest in recent years,'' he
However, as Australia's largest trading partner, demand from
China is expected to increase this year as its gross domestic
product growth is forecast to head back to 8.5% during the
second half of 2013.
''China has slowed to its lowest level of growth for some
time and the Australian [equities market] has been out of
favour in the eyes of investors who have held a negative view
on China,'' he said.
New Zealand investors also had to take into consideration the
exchange rate with Australia, which could undermine returns
on dividends, he emphasised.
Stock picks by Craigs included Adelaide Brighton
(construction), Orica (mining services and chemicals), Rio
Tinto (mining), Seek (job ads) and the ANZ Bank.
Mr McIntyre said sentiment towards the mining sector and
commodities was improving, as China had ''destocked'' last
year, but its inventory cycle was now showing signs of being
more supportive of growth.
Craigs was bullish on commodities such as copper and alumina,
both having supply constraints to China, the platinum group
of metals, whose South African disruptions last year could be
boosted by the auto-industry restocking this year, and
globally, crude oil prices would rise with accelerating
world-wide economic growth in the second half of the year.
On the negative side, bearish behaviour was expected from
iron ore, with a 100 million-tonne oversupply expected to
undermine otherwise rising prices, nickel could be buoyed by
new technology but dragged down by new project disruption,
while mineral sands carried some weakness because high
inventories were still held.
Craigs pushed out expectations on global spot gold prices,
forecasting a record $US2000 ($NZ2389) per ounce by the end
of the year, based on expectations of central bank buying and
low interest rates.
Mr McIntyre noted that for investors, one-year bank deposits
had been getting 6% interest 18 months ago, but rates were
now at 4.15% and the yield gap between those deposits and
shares had widened to more than 2%, for those investors who
could use franking credits.
''As Australian interest rates continue to fall, we may see a
shift in investor focus towards shares, as investors look for
income,'' Mr McIntyre said.
The ASX 200 index had ''rebounded strongly'', up 9.7% since
mid-November, but was still about 5% below its 20-year price
By comparison, New Zealand's NZX50 was trading above its
20-year average by about 10%, Mr McIntyre said.
''While the Australian market is far from looking like a
bargain, it doesn't look overly expensive, either,'' Mr