Australian sharemarket hits record high after Donald Trump announces new trade deal with China
Investment hopefuls eager to break into the sharemarket as the ASX continues its day of record highs have been warned that now might not be the best time to buy.
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Australian shares smashed past the 7,000 point level for the first time on a wave of investor confidence from a signed trade deal between the US and China.
The record level on the S&P/ASX200 index comes after three straight days of record highs.
The index of Australia’s largest 200 companies by market capitalisation was trading up 34.1 points, or 0.49 per cent, at 7,028.9 at noon, after briefly touching 7041.6.
The surge thumped Wednesday’s record on the Australian Stock Exchange index of 6,996.8 points.
The market has gained just over five per cent since the start of 2020 and January has become the best performing month since February last year, CommSec analyst Steven Daghlian said.
“What is going to be important this afternoon is whether the momentum will continue or whether some of the excitement will fade,” he said.
Australia’s broader All Ordinaries index was up 43.6 points, or 0.61 per cent, at 7157.1 at noon on Thursday.
The market surge comes after the first phase of a trade agreement between the US-China was signed in America after two years of trade hostilities. US stocks rose ahead of the signing and Australian shares have followed them into record territory.
The local market rise was helped by a gain in health care giant CSL, which broke another record as it passed the $300 a share mark.
The most expensive stock on the local market was up $2.00, or 0.67 per cent, at $299.74 at noon.
The gold price also rose after the trade deal was signed between the world’s two biggest economies as details of the agreement failed to assuage investor concerns about trade differences.
Gold miners gained in morning trade, with Newcrest adding 52.5 cents, or 1.68 per cent, to $31.845 cents.
Woodside Petroleum was also higher, adding 15 cents, or 0.42 per cent, to $35.95 after posting its fourth quarter report.
Woodside’s report said it had achieved significant progress on major growth projects and was targeting increased production for 2020.
Locally it is a quiet day for economic news, so all eyes are on company announcements.
Caltex Australia’s shares were up 9 cents, or 0.25 per cent, at $35.65 at 1230 AEDT after it reached an agreement to open confidential books for Alimentation Couche-Tard.
The Montreal-based global convenience store made an $8.6 billion takeover offer for Caltex in November but the fuel retailer and refiner rejected the $34.50-per-share takeover offer as inadequate.
The Australian dollar was buying 69.12 US cent at 12.30, up from 68.96 US cents at Wednesday’s close.
However, investment specialists say the best time to buy shares is not when markets are booming but when they have fallen and can be snapped up at discount prices.
They urge caution among people wanting to enter the sharemarket for the first time, and suggest buying in with smaller dollar amounts over several months rather than one big plunge.
AMP Capital head of investment strategy Shane Oliver said people should always invest for the long term and beware of “the crowd at extremes”.
“Don’t get sucked into the euphoria or doom and gloom,” he said.
Midsec adviser David Middleton said “it could keep going up” but warned that previous sharemarket crashes – such as 1987 – had followed sharp gains.
“Sell into strength so you have got funds available to buy into weakness,” he said.
“To profit from that you have to have the capacity to do so with some cash reserves.”
The record highs come after the first phase of a trade agreement between the US-China was signed overnight in the US after two years of tense negotiations. US stocks rose ahead of the signing and Australian shares have followed them into record territory.
The trade deal marked the end of two years of escalating trade battles with China, with an partial agreement to resolve some areas of conflict.
“Today, we take a momentous step, one that’s never taken before with China,” that will ensure “fair and reciprocal trade,” Mr Trump said at the White House signing ceremony.
“Together, we are righting the wrongs of the past.”
However, tariffs will remain in place on hundreds of billions of two-way trade until “phase two” is completed.
The S & P 500 and the Dow Jones indexes set new record highs on the news.
The S & P was trading at 3290 points (up 7 points) and the Dow Jones was at 29,052 (up 112 points) around 6am this morning.
The bounce is likely to have a knock-on effect to the Australian share market when it opens at 10am (AEDT).
The three main Wall Street indexes rose after White House economic adviser Larry Kudlow said negotiations on a Phase Two deal will begin as soon as the Phase One was signed.
China has pledged to increase purchases of US manufactured products, agricultural goods, energy and services as part of the deal, according to a report on Tuesday.
Beijing will purchase up to $US50 billion ($A72 billion) of crops, according to President Trump and Treasury Secretary Steven Mnuchin, $US40 billion ($A57 billion) of which has been confirmed by Chinese sources.
China has also agreed to buy $US40 billion ($A57 billion) in services, $US50 billion ($A72 billion) in energy and $US75 billion ($A109 billion) to $US80 billion ($116 billion) worth of manufacturing, according to Chinese sources.
Aside from the more than $US200 billion ($A290 billion) of Chinese purchases, Beijing has agreed to stop the theft of intellectual property and refrain from manipulation of its currency. The US, in return, will reduce tariffs on some products made in China, agreeing to cut tariffs on $US120 billion ($A174 billion) in Chinese goods by half to 7.5 per cent and to forgo other planned tariffs.
The US will keep duties on $US375 billion ($A543 billion) worth of Chinese goods.
Chinese President Xi Jinping sent a letter to Mr Trump saying a US-China trade deal was good for the “whole world”.
Robert Pavlik, chief investment strategist at SlateStone Wealth LLC in New York, said Mr Kudlow’s remarks had given investors confidence.
“Kudlow’s reiteration that China is going to buy more is positive and anything positive on trade helps markets,” he said.
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Investor sentiment had earlier been dented by a report that Washington would likely maintain tariffs on Chinese goods until after the presidential election in November.
The S & P index recorded 42 new 52-week highs and no new low, while the Nasdaq recorded 95 new highs and 10 new lows.
Originally published as Australian sharemarket hits record high after Donald Trump announces new trade deal with China
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