Scott Murdoch | September 17, 2009
INSTITUTIONAL investors have waded into the Australian equities market, buying bank and core resources stocks to push the major indices to the highest point in almost a year and maintain the 42 per cent rally since the March-lows.
The upbeat assessment from US Federal Reserve Bank chairman Ben Bernanke in a speech in Washington that, from a technical standpoint, the US "recession is very likely over at this point", sparked fresh positive sentiment towards stocks around the world.
However, Mr Bernanke also warned that uncertainties remained despite the current momentum in markets.
"It's still going to feel like a weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was," Dr Bernanke said.
Despite the mild caution, new data showed US consumers were returning to life. Retail sales surged a stronger than expected 2.7 per cent in August from July.
The buying of Asia Pacific markets began in Australia where the benchmark S&P/ASX200 soared 110.1 points or 2.42 per cent to 4650.4, an 11-month high, while the broader All Ordinaries jumped 105.6 points or 2.3 per cent to 4652.8.
The Australian dollar also surged to a fresh 12-month high of US86.76c.
There was speculation last night that the Future Fund may have been a buyer of shares yesterday, as volumes were stronger across the board. A number of major super funds are also beginning to shift back into domestic equities, after having parked most of their investments in cash over the past year.
In Hong Kong, the Hang Seng index closed 2.57 per cent higher while in Japan the Nikkei traded up to 1.7 per cent higher but was pared back to a 0.5 per cent gain for the session.
The gains in the Australian market were broad-based across banking, resources and industrial stocks but BHP Billiton and the four major banks were responsible for most of the heavy lifting.
Citi's head of Australian equities distribution, Grant Eshuys, said strong buying from domestic and offshore funds had helped maintain the momentum.
"I think any of the big pension funds that had been sitting in cash are back allocating money to equities," he said.
"Since the Labor Day holiday in the US ... offshore funds have become net buyers."
The Australian retail banks each put on at least 3 per cent yesterday after Citi said that the earnings of the top four could rise by up to 20 to 30 per cent once return on equity normalised in the sector.
UBS head of Sydney sales trading, George Kanaan, said the superannuation funds had started to shift back into the market after being initially suspicious of the rally over the past three months.
"The institutional funds have been fully invested in equities, but their clients the super funds had reduced their equity holdings quite considerably," he said.
"But now there are inflows coming. The super funds had taken money out but now it's coming back in."
The institutional funds are also thought to have been buying the Australian dollar, which has run in line with domestic equities.