Bloomberg News

Australia Futures Rise on China Stimulus Outlook

July 15, 2012

Australian stock futures rose amid speculation China may take more economic stimulus measures, boosting the earnings outlook for companies that generate sales in the Pacific nation’s biggest trading partner.

American Depositary Receipts of BHP Billiton Ltd. (BHP), the world’s largest mining company, gained 1.3 percent. Shares of Whitehaven Coal Ltd. (WHC) may be active after a group led by Australian Nathan Tinkler offered to buy the rest of the miner at a 51 percent premium to its most recent closing price, valuing the company at A$5.3 billion ($5.4 billion). ADRs of Cnooc Ltd. (883), China’s largest offshore oil producer, rose 0.8 percent as crude prices advanced for a fourth day.

Futures on Australia’s S&P/ASX 200 Index advanced 0.8 percent to 4,082 as of 6:59 a.m. in Sydney. Japan’s equity markets are closed today for a public holiday. New Zealand’s NZX 50 Index rose 0.3 percent in Wellington.

“There remains significant capacity for China to stimulate further,” said George Boubouras, Melbourne-based head of investment strategy at UBS AG’s Australian wealth-management unit. The Swiss bank has about $1.5 trillion in assets under management. “This is not only from a monetary perspective, which includes further rate cuts or lowering the reserve required ratio again, but also the ability for additional targeted fiscal stimulus.”

Futures on the Standard & Poor’s 500 Index fell 0.2 percent today. The underlying gauge gained 0.2 percent last week as a rally in JPMorgan Chase & Co. (JPM:US) and speculation China will boost stimulus measures tempered concern about earnings and the global economy. JPMorgan jumped 6.4 percent for the week as Chief Executive Officer Jamie Dimon said the bank will probably post record earnings for 2012 even after reporting a $4.4 billion trading loss.

China Rates

China’s central bank may cut interest rates by as much as one percentage point in the coming year to spur lending, the swap market signals, as slowing industrial production and exports cool the economy.

China needs to expand consumption and restructure the economy, Vice Premier Li Keqiang said during an inspection tour in central Hubei province, the official Xinhua News Agency reported July 15. This comes two days after a report showed China’s gross domestic product expanded 7.6 percent in the second quarter from a year earlier, the slowest pace in three years.

China’s Premier Wen Jiabao warned the momentum for a recovery in economic growth isn’t yet in place and that “difficulties” may persist for a while, the official Xinhua News Agency reported.

‘Bearing Fruit’

Even so, the current pace of economic expansion is within the targeted range and government measures to stabilize growth are “bearing fruit,” the premier said during an inspection tour in southwest Sichuan province, according to Xinhua yesterday. The article didn’t mention government policies for the property market.

China is facing downward pressure on economic growth and will maintain “proactive” fiscal policy in 2012, the People’s Bank of China said in its stability report on its website after the close of Hong Kong and Chinese markets on July 13.

The MSCI Asia-Pacific (MXAP) fell 2.8 percent last week, the largest weekly drop since May, amid concern slowing economic growth from China and Korea to Australia will hurt corporate profits.

Investors are demanding policymakers do more to stimulate growth even after central banks in China, Europe, Taiwan, South Korea and Brazil cut interest rates in the past fortnight to bolster economies against the impact of Europe’s debt crisis and the faltering recovery in the U.S.

Commodities Rise

The MSCI Asia Pacific Index fell 11 percent from its 2012 high on Feb. 29 through July 13, paring this year’s gain to 1.3 percent. Shares in the measure are valued at 11.7 times estimated earnings on average, compared with 13.1 times for the Standard & Poor’s 500 Index and 10.7 times for the Stoxx Europe 600 Index.

The Thomson Reuters/Jefferies CRB Index of raw materials climbed 1.3 percent July 13. West-Texas Intermediate crude oil futures advanced 0.1 percent today, gaining for a fourth day.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in New York gained 1.3 percent to 87.77 on July 13, trimming its loss last week to 3.7 percent.

To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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