Australia Shares End Down 1.4%, Extending Gloomy Week

   By Ross Kelly 
 

SYDNEY--Australian stocks slumped 1.4% Thursday after rising global bond yields diminished the appeal of dividend plays, putting the market on track for its worst weekly performance in three years.

"There is no denying that things are looking a little ugly out there right now and the banks are right at the heart of it," said Chris Weston, Melbourne-based chief markets strategist at IG.

Defying overnight gains on U.S. and European stock exchanges, the S&P/ASX 200 index lost 79.3 points to 5504.3, its fourth straight daily fall, bringing losses for the week to 4.7%. The previous time Australia's benchmark index fell that far in one week was the five-day trading period ending May 16, 2012, when shares tumbled 5.6%.

This week's lackluster performance might indicate a global bond selloff is turning investors off Australian dividend plays such as banks, real-estate investment trusts and utilities.

Bond yields are increasing amid signs Greece's debt woes can be alleviated and that U.S. interest rates will rise as anticipated later this year. Yields move inversely to prices.

"The draining of global liquidity will continue to affect all asset prices, with high-yielding Australian shares particularly vulnerable," said Michael McCarthy, a Sydney-based trader at CMC Markets.

Local sentiment wasn't helped by the release of worse-than-expected retail sales and national-account figures earlier Thursday, although much of the share-market damage had already been done before the data were out.

Australia's trade deficit more than tripled in April to 3.9 billion Australian dollars (US$3.04 billion), wider than expectations of A$2.1 billion, as the value of resource exports fell sharply, eclipsing a rise in imports of capital goods. Retail sales, meanwhile, were unchanged in April from March, worse than the 0.3% increase economists were expecting.

Until recently, Australia's market was buoyed by the strength of its banks, which offered reliable dividend yields in a low interest-rate environment. A subsequent upsurge in bond yields has taken a heavy toll on banking stocks, with Westpac Banking Corp. (WBC.AU) the hardest hit.

Westpac shares fell 1.5%, placing them 22% lower since a mid-April peak. Commonwealth Bank of Australia (CBA.AU), the biggest stock on the exchange, fell 1.3%. Australia & New Zealand Banking Group Ltd. (ANZ.AU) and National Australia Bank Ltd. (NAB.AU) fell 1.3% and 2.1%, respectively.

Mining stocks, languishing as a long resources boom fades, didn't fair any better Thursday, with BHP Billiton Ltd. (BHP.AU) shedding 1.5% and Rio Tinto Ltd. (RIO.AU) dropping 1.3%.

Grocery wholesaler Metcash Ltd. (MTS.AU) plunged 18% after it scrapped its dividend and took a A$640 million (US$498.4 million) impairment charge, as a price war in the industry intensifies.

Write to Ross Kelly at [e-mail]