The sharemarket was flat in mixed trading today, with resources companies down on the back of concern about China's economy, and banks and telecommunications mostly up on account of their high dividend yields. Citi upgraded its year-end forecast for the index.
At 11.30am AEST, the benchmark S&P/ASX200 was flat at 4963.5 points. The index consolidated in a range of 4950.1 to 4976.6 early today, after hitting a five-week low of 4931.2 yesterday.
Value was relatively light after holidays in Britain and US markets overnight.
However, analysts were wary of the potential for further offshore selling as the Australian dollar continued to fall. While the Australian share market was up 6.7 per cent for the year to date, the 7.6 per cent fall in the Australian dollar meant the domestic bourse was negative in US dollar terms.
"The greatest market risk looks to be to the downside," said CMC Markets chief market analyst Ric Spooner.
"In the absence of news it seems less likely that we will get the kind of catalyst necessary to attract buyers back to the market...recent downward momentum could feed on itself even without a news catalyst. Further weakness in Asian markets and ongoing selling of yield stocks like banks and large retailers on the local markets is a possibility."
High-yield plays supported the market, with Telstra up 0.8 per cent and Westpac up 1.2 per cent.
But resources lost ground, with BHP Billiton, Rio Tinto and Fortescue Metals down between 0.2 per cent and 0.9 per cent.
Concern centred on China, where Shanghai steel reinforcement-bar or rebar futures fell 0.6 per cent to a fresh 12-month low on Tuesday morning after falling 1.8 per cent the day before. Spot iron ore dived 1.9 per cent to $US120.90 a tonne, its lowest point in almost six months.
China was due to report official manufacturing PMI data on Saturday. Last week, HSBC's "flash" manufacturing PMI index suggested the sector contracted in May.
In a show of confidence in the domestic market, Citi raised its year-end forecast to 5400 from a previous forecast of 5200, while also forecasting a rise to 5600 by the middle of 2014.
"The market multiple remains only at around an average level, and this should be sustainable, as the market still seems on track for moderate earnings growth in fiscal 2014; and an average multiple should enable the market to absorb at least a modest rise in bond yields that might come with the tapering of QE3," Citi strategists Tony Brennan and Zee Yusuf said in a report.
While a sharper rise in bond yields was a "clear risk" for equities, the cautious approach the Fed appears intent on taking means that's "less likely," the strategists said.
They expect 2014 earnings growth from lower interest rates, widespread cost cutting and a falling exchange rate.
