ASX 200 shares up 1.3% over the week
Australia’s share market has ended the week firmer as investors tentatively inched away from the sidelines after the Federal Reserve’s policy-setting committee raised US interest rates for the first time in nine years.
The S&P/ASX 200 index added 1.3% over the last full week before Christmas to 5,098.20 late on Friday. The benchmark index was virtually flat on Friday, edging just five points higher.
Blair Hannon, CommSec Advisory senior investment advisor, said investors had played a waiting game before Federal Reserve (Fed) chair Janet Yellen and the Federal Open Market Committee (FOMC) release their rate decision early Thursday morning Sydney time.
The FOMC raised the target range of its key interest rate by 25 basis points to between 0.25% and 0.5%.
“The actual rate decision was a basically a foregone conclusion; the comments made by Janet Yellen and the Fed were the important part for the market as they provided some forward guidance, which is what the market concentrates on,” Hannon said.
“They seem to have confidence in the US economy. They’ve got an inflation target of 2% and they’re not near that yet, so they’ve got a lot of capacity in the economy,” he said, adding solid jobs growth was also underpinning economic growth.
As a result, sentiment among investors in Australia improved markedly over the week, Hannon said.
“After two consecutive strong up days there has been a more positive response from investors as we had a very rough start to December trading, with only two ‘up’ days before the rate decision.”
Mining, energy out of favour
Resources and oil and gas continued to underperform the market.
BHP Billiton (ASX: BHP) fell 1.8% to $16.72 late on Friday, extending its declines over the week to nearly 3%.
Uncertainty over the mining giant’s dividend policy is also weighing as concerns grow over the company’s determination to progressively increase dividends – or even hold them steady.
Earlier this week, BHP slid to a fresh 10-year low of $16.25, returning to levels last seen before the global financial crisis (GFC) and before the China-led ‘stronger for longer’ commodities outlook swept resources shares higher.
“These levels were last seen before the GFC, so that’s definitely holding us back a bit. That’s why we’re not going to get back to pre-GFC highs,” Hannon said of the broader market.
“Unlike the US market, which is widely diversified, Australia’s market is dominated by banks (which amount to 30% of the overall market) and then is rounded out by a couple of major resources companies, and a telecommunications company and supermarket operators.”
Consumer discretionary and consumer staples helped underpin the market’s firmer tone.
Wesfarmers (ASX: WES), which owns Coles supermarkets, climbed 5% over the week to $39.78 and Woolworths’ (ASX: WOW) rose 2.2% over the week to $23.53.
Bega Cheese (ASX: BGA) powered 7.7% ahead to $6.14 as positive sentiment from the a2 Milk Company’s (ASX: A2M) profit upgrade spilled over.
Shares in a2 powered 31.4% ahead on Friday to $1.36, a gain of 35.3% over the week.
Bega is in a partnership with Blackmores (ASX: BKL) to produce high-quality infant formula for consumers in China, where demand for Blackmores vitamins has propelled the company’s shares 520% over the past 12 months.
Blackmores rose 4.6% over the week to $204.73.