Australian shares rose slightly yesterday as global equity markets remained supported by tentative signs of improvement in China's economy.
Fund managers tipped continued yield-based demand for Australian equities in particular, although strategists cautioned that the upcoming earnings period in February was a hurdle for the domestic bourse. The benchmark S&P/ASX 200 closed up 0.2 per cent to 4719.7 after falling 0.3 per cent last week despite a 0.9 per cent rise in the MSCI World Index.
The rise came despite disappointing economic data and some doubt about iron ore prices, which saw another downgrade on BHP Billiton.
"There are significant global risks that are receding, so you're seeing a continued flow of funds from cash to equities," Macquarie Private Wealth investment adviser James Rosenberg said.
Commonwealth Bank, National Australia Bank, Woodside Petroleum, Westfield, Newcrest Mining and AMP underpinned the market with gains of between 0.4 per cent and 0.8 per cent.
Standouts included Aquila Resources, Iluka, Ten, CSR and Alumina, which rose between 3.2 per cent and 7.1 per cent.
BHP Billiton fell 0.3 per cent after Bank of America Merrill Lynch cut the world's biggest miner to underperform from neutral, while slashing its price target by 15 per cent to $32. That followed a similar downgrade from Macquarie Equities last week.
BofA analysts said BHP was expensive and "exposed on the downside in the event that iron ore/oil prices roll over".
Spot iron ore prices fell 2 per cent on Friday after rising 80 per cent since September. Nymex crude oil fell 0.3 per cent on Friday after rising 10 per cent in the past four weeks.
Also of potential concern for the market, the number of jobs advertised in Australian newspapers and online fell 3.8 per cent in December from November, hitting their lowest level in three years, a non-government survey showed. The jobs data foreshadowed a potential rise in official unemployment figures due on Thursday.
However, demand for relatively high dividend yields available from shares was likely to remain strong this year, particularly in Australia, said Antares co-head of equities Glenn Hart, who helps manage $4.1 billion of Australian equities.
Mr Hart expects loose monetary policy and the high cash levels held by pension funds to support global equities. In Australia, he points to expectations that official cash rates could fall from 3 per cent to 2 per cent, the high cash levels held by self-managed superannuation funds, the subdued performance of the Australian market relative to recoveries from previous financial crises, and low equity market valuations relative to through-the-cycle earnings per share, as factors that are likely to generate ongoing demand for quality high-yielding companies.
"In this environment, dividend yields are set to remain a significant component of expected equity market returns in coming years," Mr Hart said in a report.
