Cloud hangs over market


Despite a respectable domestic reporting season, further positive US economic data and no major negative news out of Europe, the ASX 200 has been unable to break out of the 4000-4350 trading range it has been locked in for the past eight months.

Since late January, the sharemarket has been gyrating around the 4300 level, waiting for the next piece of major news to drive the market decisively in one direction. That 'trigger' came last Monday in the form of a weaker Chinese 2012 growth outlook (7.5 per cent target, revised down from 8 per cent).

Although a slowdown in Chinese economic growth is largely expected, it is not a particularly exciting prospect for stocks, especially growth-focused mining equities, which dominate the ASX and Australian investors' portfolios.

It was only a month ago the likes of BHP-Billiton, Rio Tinto and Fortescue Metals (FMG) reported record or near-record iron ore production, however, their share prices have continued to fall after the initial 'spikes' of excitement.

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BHP and Rio have fallen back to test their lower levels of support. From the time of China's announcement on Monday to close of business Wednesday, the falls on these stocks (inclusive of FMG) were in the vicinity of 4-9 per cent - not really appetising when you consider they lost about 30 per cent of their value in calendar year 2011.

In the insurance sector, QBE Insurance has completed a $450 million Institutional Share Placement at $10.70 per share and has offered $150 million at the same level to eligible retail shareholders via a share purchase plan.

Those registered shareholders will receive correspondence by mail that will invite them to invest up to a maximum $15,000 in shares that is subject to a discretionary scale back.

This means shareholders have to be aware that if the share purchase plan is oversubscribed, they may be allocated less than they requested with the company possibly taking into account the applicants' current shareholding to determine the number of shares received.

This limits the opportunity for retail investors to 'twist' the stock, because they do not know the amount of shares they are set to receive and so do not know how many to sell. Institutions do not face the same dilemma.

But it is not all doom and gloom. There is always somewhere to make money on the market and, at present, the oil and gas shale sector is a hotspot. This sector has been huge in the United States, with talk that it is re-energising the US economy and some observers are predicting the end of the Peak oil debate.

With similar geology, Australia has shown potential in this sector but is only just beginning to work through the environmental hurdles and achieve results that have potential commercial implications.

Major players Beach Energy (BPT) in the Cooper Basin and Buru Energy (BRU) in the Canning Basin have made discoveries that have led to their share prices rising between 40 and 140 per cent from the start of the year to highs in February.

Closer to home, AWE Ltd and Norwest Energy (NWE), which share the Arrowsmith project in the Perth Basin, were granted Government approval for rock-fracturing tests in early March. NWE's stock price jumped 34 per cent in a session on the back of this announcement and the company hopes to commence testing the Arrowsmith well by mid-year.

Finally, given this is my inaugural column for _Countryman _, I'd like to introduce myself. I am a senior broker at Sentinel Stockbroking and, like many of the brokers at Sentinel, I have a country background. My family farmed in the Brookton region where I was brought up, with a stint in Albany and school in Narrogin.

The links that Sentinel has to farming communities is the reason for Sentinel's involvement in rural events. For example, this month Sentinel will have representatives at the Ten Tigers presentations being held from Binnu to Esperance.

·If you would like to subscribe to Adam Farrall's weekly market update, contact him at Sentinel Stockbroking on 9225 0020 or email afarrall@sentinelgroup.com.au

_Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time. _

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