Australian Markets Put Together the Longest Rally in 9 Years as the Reserve Bank of Australia Cuts Cash Rates

“Australian stocks posted the longest streak of daily gains in more than nine years as three cuts in interest rates boosted lenders’ profit margins and signs of recovery in China’s economybuoyed BHP Billiton Ltd.

The benchmark S&P/ASX 200 (AS51) Index rose for a 10th day, the longest run since October 2003. Lenders from Westpac Banking Corp. (WBC) to National Australia Bank Ltd. (NAB)accounted for the largest proportion of the increase as home sales climbed and business confidence grew. BHP, the world’s largest mining company, paced gains among mining companies as China’s manufacturing, economic growth and industrial production exceeded estimates. The measure climbed 0.2 percent to 4,896.70 today.

Investors are moving into equities as the Reserve Bank of Australia undertakes the most aggressive interest-rate cuts among advanced economies, sapping the allure of bonds as yields decline. The S&P/ASX 200’s forecast dividend yield of 4.5 is the highest among the world’s 10 largest equity markets, according to data compiled by Bloomberg.

“Lower interest rates contributed to strong gains in the banking sector and the improved China outlook supported demand for Australian resources,” Keith Poore, the Wellington-based head of investment strategy at AMP Capital, which has about $126 billion in assets under management, said in a phone interview yesterday. “We didn’t think there was going to be a hard landing in China and that seems to have been the case. This year will be more about how fast the recovery is in China.”

Interest Margins

RBA governor Glenn Stevens has cut the central bank’s target cash rate four times, or 1.75 percentage points, since November 2011. Australia’s four biggest banks, controlling more than three of every four contracts in the nation’s A$1.1 trillion ($1.2 trillion) mortgage market, have withheld about a quarter of the cuts, according to Bloomberg data….”

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