Australia Stocks Close Higher; Banks Weaken on Tax News

By David Winning Features Dow Jones Newswires

Australian shares edged higher on Friday, even as banking stocks were jolted by a fresh tax grab.

Continue Reading Below

Investor enthusiasm for resources and healthcare stocks helped the S&P/ASX 200 index close up 0.2% or 9.9 points at 5715.9, representing its second straight day of gains. Rio Tinto Ltd. advanced after Deutsche Bank said it now assumed a further U$500 million share buyback in 2018 because its cash flow would be boosted by stronger-than-expected aluminum and iron-ore prices that year.

Among financials, Australia & New Zealand Banking Group Ltd. fell 0.6% to A$27.68 and Commonwealth Bank of Australia dropped 0.8% to A$81.25 after South Australia state said it would impose a tax on their bonds and deposits. The surprise move is projected to raise about A$370 million over the next four years.

South Australia's levy would be applied to the same five banks that are the target of a federal tax passed by parliament this week that is forecast to raise up to A$1.6 billion a year to help Canberra close its budget deficit. In language that echoed that of federal lawmakers, South Australia Treasurer Tom Koutsantonis said the major banks were highly profitable so they could afford the tax.

UBS said the levy had deepened its caution around the sector, and that Pandora's Box is now officially open. It cited the experience of U.K. banks with a similar levy that was raised on nine occasions, and suggested Australia's other states may now follow South Australia while the federal government could increase its fresh levy given a federal election is 12-18 months away.

National Australia Bank Ltd. and investment bank Macquarie Group Ltd.--among the levy's targets--fell 0.5% and 0.9% to A$29.31 and A$89.40, respectively. But a broker upgrade helped to support the final member of the quintet, Westpac Banking Corp., which fell a more-muted 0.1% to A$30.18. Credit Suisse upgraded Westpac to outperform from neutral, viewing it as the biggest beneficiary to date of home-loan repricing pushed through by the industry.

Continue Reading Below

In the resources sector, Rio Tinto added 0.8% to A$58.83 and BHP Billiton gained 1.2% to A$22.41 after Deutsche Bank raised its forecasts for iron-ore prices by 3% in 2018 and by 1&-2% in the following three years.

Changes to its commodity price outlook also helped Iluka Resources Ltd. to rise 4.7% to A$8.47. Deutsche now expects zircon prices in 2018 to be 12% higher than previously thought, a conclusion that helps to justify Iluka's decision on Thursday to ready a restart of its Jacinth-Ambrosia mine in southern Australia.

Elsewhere, private hospital operator Ramsay Health Care Ltd. rose 1.5% to A$72.98 and pharmaceuticals company CSL Ltd. advanced 1.7% to A$143.33 amid broad buying of healthcare stocks.

-Write to David Winning at david.winning@wsj.com

(END) Dow Jones Newswires

June 23, 2017 02:40 ET (06:40 GMT)