Australian Banks Downgraded; Stocks in 5-day Rally

Marcus Jacob
02 Dec, 2011
New York City

Australian stocks gained for the fifth day in a row as commodities markets trade higher. Investors ignore the latest downgrade of the four largest banks in Australia. Rio Tinto plans to spend $3.3 billion to modernize its aluminum plant in British Columbia.

[R]8:00 PM Sydney – Australian stocks gained for the fifth day in a row as commodities markets trade higher. Investors ignore the latest downgrade of the four largest banks in Australia. Rio Tinto plans to spend $3.3 billion to modernize its aluminum plant in British Columbia.[/R]

Australian stocks extended gains for the fifth day in a row and investors ignored the latest downgrade of four “pillar banks.”

Investors focused on the strength of the economy and China’s latest attempt to offer more liquidity to the financial systems and the sustained prices in the commodities markets.

The ASX 200 index added 59.2 or 1.4% to 4,287.8 and All Ordinaries index gained 1.3% or 58 to 4,346.10. For the week, the ASX 200 index increased 7.6%.

The Australian dollar edged higher 0.3% to US$1.027.

Stock Movers

BHP Billiton Ltd gained $0.30 to $36.65 and Rio Tinto Ltd increased $0.40 to $66.32. Newcrest Mining added $0.25 to $35.95.

Fortescue Metals Group increased 6 cents to $4.86, Lynas Corporation Limited closed down 5 cents at $1.27 and Iluka Resources added $0.66 to $16.06.

Oil Search Limited traded up 14 cents to $6.52, Santos Limited gained 20 cents to $13.45 and Woodside Petroleum closed up $0.14 cents to $33.66.

Australian banks were downgraded by the rating agency Standard & Poor’s on the revised criteria to assess risk. The ratings of four largest banks were cut by one level to AA-, the fourth highest rating on the S&P’s rating scale.

The new revised rating system places more emphasis on the strength of the nation’s banking system. However, S&P suffers from a credibility gap after it awarded highest ratings to the subprime securities in the U.S. that later turned out to be nearly worthless.

Australian banks are one of the strongest groups of banks and the current ratings are closer to the Canadian banks ratings. The four largest banks in Australia have reduced their reliance on foreign capital and accessed more capital from domestic households and four largest banks posted annual profit of $20 billion in the last financial year.

Commonwealth Bank of Australia closed up $0.95 to $49.55 and National Australia Bank increased 38 cents to $24.55. ANZ edged up 38 cents to $20.88. Westpac added 44 cents to $21.57.

David Jones Limited closed up 1 cent to $2.89 and Wesfarmers Limited rose $0.67 to $32.41. Harvey Norman closed up 4 cents at $2.17.

Woolworths Limited closed up 60 cents to $25.47 and James Hardie Industries SE increased 11 cents to $6.95.

Qantas Airways Ltd closed up 2 cents to $1.61, Virgin Australia closed up 0.5 cent to 35.5 cents and Flight Centre rose 18 cents to $19.47.

QBE Insurance Group Limited increased 32 cents to $14.29.