Australia shares drop on weak earnings, Fed stimulus concerns

Australia shares drop on weak earnings, Fed stimulus concerns
Business & Markets 2013
Written by Reuters
Tuesday, 20 August 2013 10:52

SYDNEY (Aug 20): Australian shares slipped 0.3 percent on Tuesday, as uncertainty over the U.S. Federal Reserve's stimulus programme was compounded by some disappointing earnings from the likes of QBE Insurance Group Ltd , which plunged over 6 percent.

Mining stocks were hit as copper prices dropped on concerns about a turn in Fed policy. BHP Billiton Ltd and Rio Tinto Ltd each lost 1 percent. Investors are also focused on BHP Billiton's earnings report, due after the close of Tuesday's trading session.

"We do expect commodity prices to ease further. With China's growth slowing, we think there are a number of challenges for the miners," said Andrew Doherty, head of equities from Morningstar, an independent research house. China is Australia's biggest export market.

QBE Insurance Group Ltd dragged on the market, dropping 6.5 percent to 2-1/2 month lows at A$15.93 after posting a 37 percent fall in half-year net profit to $477 million, as the company continued to pay out claims for previous years.

Coca-Cola Amatil Ltd slumped 3.9 percent to 9-week lows of A$12.24, after the company reported a 12 percent fall in half-year net profit, citing tougher trading conditions.

"I think with the run up in the previous months the market was giving indications that we would be seeing quite a healthy earnings season, so I think when companies are on par with their results, that's not necessarily getting a good reception," said Tim Waterer, senior dealer from CMC Markets.

"And of course when companies do disappoint with their numbers, they're facing some selling pressure which we have seen in recent days," he said.

The S&P/ASX 200 index dropped 14.2 points to 5,098.3 by 0145 GMT.

The benchmark finished a volatile trading session flat on Monday, and has been on the defensive in recent weeks, with investors continuing to fret about an eventual end to the Fed's stimulus programme, which have supported risk assets in recent years.

Elsewhere on the earnings front, Macmahon Holdings Ltd tumbled 17.1 percent to A$0.145. The Australian mining contractor posted a bigger-than-expected full-year net loss on Tuesday and said the current financial year would be challenging.

Junior miner Metminco Ltd soared 21.3 percent to A$0.07, a 9-month high, after saying costs of its Los Calatos copper after a scoping study has indicated higher recoveries, improved production rates and lower upfront costs.

Financials were modestly lower, with Westpac Banking Corp down 0.5 percent and top lender the Commonwealth Bank of Australia trading flat. The big four banks have had a stellar year so far, rising on average 19.8 percent versus a 9.5 percent increase for the broader market, boosted in part by record profits and as investors continue to chase their high yields.

U.S. stocks lost ground overnight, with each of the major indexes falling for a fourth straight session, as investors were hesitant to make new bets ahead of an expected shift in Federal Reserve policy that could lead to higher interest rates.

New Zealand's benchmark NZX 50 index rose 0.1 percent to 4,509.3 points. - Reuters