MND Monadelphous Group Limited

   By Rebecca Thurlow 
 

SYDNEY--Australian shares ended higher for the seventh straight week helped by gains in financial and energy stocks.

The S&P/ASX 200 closed up 17.8 points, or 0.3%, at 5405.9 points, on Friday, as consumer-facing stocks such as retailers and gaming companies also made headway.

Among the big banks, Australia & New Zealand Banking Group Ltd., or ANZ, was the biggest gainer on Friday, rising 1.2%, followed by Westpac Banking Corp., up 0.75%. The gains came after Fitch affirmed its ratings on the country's major banks and said the lenders can manage growing macroeconomic risks associated with rising household debt and strong housing price growth. The comments followed a similar assessment from Moody's Investors Service Thursday that the banks' balance sheets remain solid despite a recent spike in impaired loans.

In the retail sector, Wesfarmers Ltd. ended the day up 1.9%, rebounding from losses earlier in the week when it announced plans to slash the value of its Target budget department stores and Curragh coal mine. Slot machine manufacturer Aristocrat Leisure Ltd. rose 1.9%, extending gains made Thursday when it announced a doubling in profit helped by an expansion into digital gaming.

After posting strong gains earlier in the week on rising oil prices, energy stocks such as Woodside Petroleum Ltd. and Santos Ltd. continued to rise Friday, albeit at a slower pace.

Still, a weak spot in the market Friday was mining stocks, with Rio Tinto Ltd. falling 1.4% and BHP Billiton Ltd. falling 0.2%. While iron ore and other metals prices have rallied through much of this year, they've been heading lower this month amid uncertainty over the outlook for China's economic growth and oversupply in many metals and resources markets.

Australian shares are now looking alarmingly expensive to IG, with the S&P/ASX 200 currently trading at 17.48 times forward earnings, a level the firm says is above the index's long-run average and a strong signal that a correction may be imminent.

At the same time analysts' earnings forecasts for Australian stocks are "incredibly negative, possibly overly so".

"This is the predicament that the ASX finds itself in, either earnings estimates begin improve or prices collapse," said IG analysts, adding that much depends on what happens to commodity prices given the market's heavy weighting to resources stocks.

"The most 'stretched' valuations are in commodity-related sectors, but there is a perfectly valid case to argue that commodity prices will be higher from their current levels in 12 months or more."

They say it is likely that earnings-per-share forecasts will improve in coming months and list Monadelphous Group Ltd., Western Areas Ltd. and Downer EDI Ltd. among the stocks whose value they expect to increase over the next 12 months.

- Write to Rebecca Thurlow at rebecca.thurlow@wsj.com

(END) Dow Jones Newswires

May 27, 2016 03:26 ET (07:26 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.