Australia’s market recovery led by big banks and Telstra

Added by Gary Dunn on August 11, 2011

The eurozone’s debt crisis shifted to France on Friday, leading to a bit of a respite for the Australian markets. The S&P/ASX closed flat at 0.5 points (0.01%) at 4140.8 after falling by 2% when the market opened.

Volatility was at its best with the Index moving across about 100 points. The Index traded up as much as 0.63% with traders describing it as “off the charts”. Traders were taken aback when the index rested in the black at the end of the day, after recovering 7% on August 8.

The Australian Dollar improved and came out of the recent lows from US 1.0179 to 1.0266, despite the unexpected deterioration in the unemployment rates which rose to an eight month high of 5.1%. However, late yesterday saw better figures, as the Australian Dollar traded as high as US 1.0363 later in the day.

The market’s rebound was lead by Telstra which recorded a 5.7% rise, stemming from profits that exceeded expectations. Speculation that the Reserve Bank would cut interest rates assisted the recovery. Shares in Australia’s big four banks were subject to a lot of buying by offshore funds, which helped to boost the overall market.

Ben Potter of IG markets, a well known strategist, was optimistic of the performance of the markets in the near future,  after 18 months of under performing in the global arena. Potter added that the resilience of the Australian stocks is derived by the nation’s relative economic strength compared to many developed economies.

A spokesman from CMC markets added that Australia could benefit from foreign investments, as investors are already looking for greener pastures after the downgrade of the US government’s credit rating by the S&P earlier this week. Investors are moving away from US and Europe-based securities and moving towards economies where Central Banks offer room for development.

The head of research for Managed Funds and Structured Products of the Commonwealth Bank, Andrew Merchant, stated that signs of improvement in the Australian dollar and the nation’s close economic and trade ties with China promising added value and yield, are expected to attract the attention of fund managers.

Market experts say that despite the currency appreciating, stabilizing markets, rising unemployment rates on volatility, inflation being high and expected to rise further, they expect that the next market move will be up instead of down. So, while the troubles are far from over a lot of good is yet to come.