DJ BHP, Commonwealth Bank Vie to Be Australia's Biggest Stock
Mar 18, 2013 (Dow Jones Commodities News via Comtex) --
By Caroline Henshaw
SYDNEY--A slump in global commodities has pummeled BHP Billiton Ltd. (BHP) over the past year, with the Australian miner on Monday briefly losing its status as the biggest company on the country's stock exchange.
The dominance of BHP--nicknamed the Global Australian for its geographical spread of resources assets--is being challenged by Commonwealth Bank of Australia (CBA.AU) as concerns about softer demand for commodities like iron ore and coal, particularly in China, make Australian banks' high-yielding shares more attractive.
BHP's Australia-listed stock has lost a quarter of its value since peaking in April to 111.41 billion Australian dollars (US115.50 billion). Over the same period, shares in Commonwealth Bank--Australia's largest lender--have surged by roughly 30% to A111.39 billion.
That trend was underscored during trading Monday when Commonwealth Bank's market capitalization topped A111.85 billion, briefly surpassing the value of BHP's locally listed shares.
To be sure, Melbourne-based BHP remains the more valuable company. A dual listing in London means BHP, which traces its roots back to the discovery of silver, lead and zinc in the Outback in the nineteenth century, is worth around US180 billion.
For investors in Australia's share market, the issue isn't simply a matter of bragging rights. Many traders, including those managing so-called tracker funds, weight their Australian investments according to the relative values of companies on the stock market.
Australian banks have become more attractive to investors as easing funding costs and the improving outlook for the domestic economy boosted profits. Bank shares have outperformed the market by roughly a fifth in the past year, and now account for a record 30% of the share market.
Matthew Sherwood, head of investment research at Perpetual, which manages around A24 billion of assets, said the shift shows that investors still prefer the perceived safety of Australia's highly-rated banks to its miners, which have been hit by spiralling costs and a waning mining boom.
Commonwealth Bank and BHP painted a contrasting picture when updating the market last month on their earnings in the six months to Dec. 31.
Commonwealth Bank reported a small uptick in half-year net profit to A3.66 billion, benefiting from a year-long campaign of interest-rate cuts by Australia's central bank that has slowly rebuilt consumer and business confidence.
BHP, however, reported that its first-half net profit fell to US4.24 billion from 10.04 billion a year earlier, in part due to hefty writedowns on Australian aluminum and nickel assets as commodity prices slowed. BHP said last month that Chief Executive Marius Kloppers will step down this year and will be replaced by Andrew Mackenzie, who heads the company's non-ferrous metals division.
Analysts say Mr. Mackenzie is likely to pursue a strategy of selling poorly performing or smaller assets to focus on more profitable projects, while continuing to look for ways to cut costs. That approach mirrors several of BHP's mining peers, including Rio Tinto PLC (RIO), whose shares have also fallen sharply over the past year as commodities demand softened.
"Banks, given their highly reliable earnings and yields, have risen very aggressively," Mr. Sherwood said. "Resources have swung from being a price game to a costs game."
Write to Caroline Henshaw at email@example.com
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