Resource Boom Fuels Employment As Big Miners Continue To Hire

The Age

Friday May 9, 2008

Vanessa Burrow

RESOURCE companies are proving an asset to the economy and the sharemarket, making a positive contribution to employment.

Employment rose more than expected in April, as the country's biggest miners added new workers. And unemployment remains at a low 4.2% (see graph below).

It was the only economic data released yesterday, and seemingly contributed to the market remaining immune to peer pressure.

Wall Street had fallen, with the Dow Jones Industrial Average down 1.6% and the S&P 500 down 1.8%, as it emerged the US banks would be required to disclose their capital and liquidity levels to the US Securities and Exchange Commission.

European markets broke from tradition and ignored their friends across the Atlantic, holding on to Wednesday's gains. Still, Hong Kong's Hang Seng fell 0.6% and Japan's Nikkei lost 1.1%.

But the S&P/ASX 200 Index gained 54.8 points, or 1%, to close at 5723.2 points. It had been down 77.8 points, or 1.4%, at one stage.

Besides the employment figures, there was also good news from Commonwealth Bank. Chief executive Ralph Norris said the bank had no need for additional capital.

Commonwealth has also securitised $15.6 billion in residential mortgage-backed securities (RMBS), most of which it will be able to use for repurchase agreements with the Reserve Bank if it requires a further $12.25 billion in liquidity.

Commonwealth Bank led the market with a gain of $1.80, taking it to $43.70. Westpac and National Australia Bank followed, up 90? to $25.69 and 50? to $31 respectively.

But ANZ, which traded without the right to a 62? interim dividend yesterday, declined 13? to $22.17.

Suncorp-Metway gained $1.41, or 10.4%, to $15.01 after confirming it was on track to record a 12% increase in profit. It was the insurance and banking company's biggest one-day gain since 1994.

After a very strong surge, Fortescue Metals Group lost 30? to $9.09, and BHP Billiton fell 34? to $44.95.

But Aberdeen Asset Management senior investment manager Andrew McMeningall said it had actually become easier to find value in equity markets. "We really struggled nine months ago because we couldn't find good value - everything was expensive," he said.

For the same reason, the fund manager has steered clear of US and British banks for the past five years. And Mr McMeningall said he still would not touch them.

And, with equity markets proving unreliable, Aberdeen Asset Management associate director, business development, Stuart James, said fixed-income investments were making a comeback. "I think people have forgotten that bonds are a defensive asset class," he said.

Australian two-year bonds are offering a yield of 6.428% while 10-year bonds have a yield of 6.274%.

Stuart Rae, senior vice-president of asset manager AllianceBernstein, said people were still looking for safe investments.

But Russell emerging market portfolio manager Scott Crawshaw said it was advisable to put 10% to 15% of a share portfolio in emerging markets, to participate in their strong growth. Equities in Brazil, South Africa and Korea were among his top picks.

? For updates, breaking news, a portfolio tracker and other analytical tools, go to businessday.com.au

© 2008 The Age

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