Asian stocks recover some ground

Asian shares were mixed today – some recovering some ground from yesterday while others were still in the red during afternoon trading.

Australian stocks were relatively sluggish, though the market managed to generate some gains today. We don’t think it’s a case of Australian companies looking vulnerable which makes the market very attract at current levels. It can stay attractive for a while but not forever. Having come through reporting season, Australian companies have not only matched earnings expectations but also shown their balance sheets and cash flow generation continues to improve. Business confidence is weak but things will eventually turn around.

Our banks are not immune from global sentiment around European issues but they equally don’t have any large significant lending exposure to Europe, nor do they carry large funding risks in the near term.

We don’t think BHP and Rio are the best trading ideas at the moment, contrary to what many in the market believe. Instead we continue to prefer simple businesses that can ride out low growth environments: Telstra, office property, utilities. They might not seem attractive on face value but traders who have opted for these areas over the past two weeks are performing a lot better than, possibly even banking profits.

Our market is up despite stocks in Korea, Hong Kong and China down on the session. There will be more volatility over the next few months but with the world working its way through financial problems, there might be some light at the end of the tunnel towards the end of the year. We continue to remain bearish on the Euro and think the 1.30-1.35 EUR/USD range will become the new norm for some time.

China’s interest in Italy bonds is nothing new. The Chinese have always reaffirmed their commitment to diversify currency reserves and provide liquidity and assistance should investment opportunities stack up. Former deputy central bank governor Wu Xiaoling again reaffirmed the unnecessary panic around Europe’s liquidity today, talking up China’s capacity and willingness to invest where possible. Italy’s $1.6 trillion bond market means a whole range of investors, from all parts of the global, have and will continue to invest for a very long period of time.

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