The Australian sharemarket lost the last of its 2017 gains this week, as global markets digested the increasing-certainty of a 'hard Brexit' and lost more of the exuberance that greeted the election of Donald Trump last year.
The benchmark S&P;/ASX200 lost 0.7 per cent to 5654.8 on Friday, and 1.2 per cent over the week, following cues from Wall Street and other regional markets which also ended the week lower. A second straight week of losses meant the index is also in the red for the year, down 0.2 per cent.
![The benchmark S&P/ASX200 lost 0.7 per cent to 5654.8 on Friday, and 1.2 per cent over the week, following cues from Wall ...](/web/20170120094619im_/http://www.theage.com.au/content/dam/images/g/t/3/7/g/1/image.related.articleLeadwide.620x349.gtvgir.png/1484903789225.jpg)
AMP Capital head of investment strategy Shane Oliver said the market had been correcting some of the large gains it had made since Donald Trump's election in November. In the next few weeks, he said, shares "remained vulnerable" to more of this "as we enter the seasonally weaker month of February and as nervousness around what President Trump will do in relation to tax cuts, deregulation and US-China relations lingers".
"However, we see sharemarkets trending higher over the next 12 months helped by okay valuations, continuing easy global monetary conditions, fiscal stimulus in the US, some acceleration in global growth and the shift from falling to rising profits for both the US and Australia."
Fundamentally, Mr Oliver said, economic and corporate data releases remained encouraging, suggesting that aside from "political bluster and uncertainty over Trump's policies the world has entered 2017 on a strong note".
Locally, the financial sector took a heavy hit this week, as the deregulatory fervour in the United States tempered and several analysts, including Fitch, issued reports outlining their concerns over bank valuations. The sector as a whole shed 2.8 per cent.over the week.
Among the big banks, ANZ suffered the biggest losses, dropping 4.1 per cent after a downgrade to 'neural' by Citi, while the other big three shed around 3 per cent over the week.
The week's top mover was Bega Cheese, up 21 per cent over the week after buying Vegemite and other branded consumer goods from Mondelez International. Blood products giant CSL also had a good week, soaring 13.4 per cent following a surprise profit upgrade on Thursday, while gold miner Santa Barbara reaped the benefits of the gold prise rally, up 10.2 per cent.
Outside the ASX 200, Oroton shares plunged 13 per cent on Friday after the luxury handbags retailer lowered profit guidance due to soft Christmas period sales.
Market movers
Aussie dollar
The Australian dollar rounded off another strong week with a two-month high after data showed China's economy expanded at a faster-than-expected pace in the fourth quarter of 2016. The dollar was fetching US75.82¢ in late trade, just below Friday's peak of US75.89¢, a level not seen since November 11. The Aussie rose about 1 per cent this week, its fourth straight weekly gain. It is up 5.3 per cent in January so far, making it one of the best performing major currencies in the world.
Gold shines
Gold is another winner of the week, buoyed by a weaker US dollar ahead of the inauguration of Donald Trump. Spot gold topped $US1200 this week for the first time since late November and was up 0.3 per cent at $US1207.80 per ounce in late trade on Friday. Traders attributed the gains to safe-haven buying, while strong US data was seen as keeping a cap on the price. Local gold miners have profited from the recovery, with the All Ords gold index rising 2.8 per cent over the week, its fifth straight weekly gain.
Bank rally stalls
Analysts have been busy updating their outlooks for Aussie banks this week following a pretty impressive rally since the US election, and the bottom line is that share prices are looking stretched. Citi said the market's expectations of cost cuts seemed misplaced, downgrading ANZ to 'neutral', and Westpac and CBA to 'sell', while Morgan Stanley said local banks had piggybacked on a global rally, even though many factors driving the rally were unlikely to affect the big four, citing US tax cuts and fiscal spending.
Chinese growth
China's economy accelerated for the first time in two years in the final quarter of 2016, cementing an economic stabilisation that's giving leaders a buffer as they transition to neutral policy and prepare for potential trade tensions with Donald Trump. Gross domestic product grew at an annual pace of 6.8 per cent in the fourth quarter, slightly more than expected, supported by higher government spending and record bank lending that has stoked concerns about an explosive rise in debt. In 2016, the world's second largest economy expanded 6.7 per cent, smack bang in Beijing's target range, but still the slowest pace in 26 years.
Stock Watch - Bega Cheese
The purchase of Vegemite and the Kraft spreads business this week lit a fire under the share price of Bega Cheese, which analysts say could encourage the board to tap investors for fresh funds. Bega is yet to clarify how it will finance the $460 million acquisition, beyond tapping banks to borrow the initial funds to pay for the purchase. But until more detail is revealed about how the purchase is to be financed, sharemarket analysts are on the backfoot in advising clients whether to buy Bega shares on the deal. "There is quite a degree of uncertainty about how it will be funded," Morgan's analyst Belinda Moore noted. "The most straightforward of the options, a 1-for-3 rights issue at around $5 a share would address the gearing issue quickly and equitably for shareholders," Bell Potter's analyst Snape told clients. The shares ended the week 21 per higher at $5.20, still well off the levels of around $6.50 it was trading up until it shocked investors in October with a profit warning due to slowing infant formula sales.