Wednesday May 16 was the worst trading session of the year so far on the Australian Securities Exchange (ASX), as the benchmark S&P/ASX 200 Index shed 2.4 percent to take it to its level since Mar. 7.

The ASX 200 is still 2.7 percent to the positive in local price-only terms and has generated a total return–capital gain or loss plus dividends–of 4.6 percent. But factoring in the Australian dollar’s 2.7 percent decline against the US dollar in 2012 the price-only return is negative 0.5 percent, while the total return is 1.3 percent.

The correction for the aussie versus the buck from its Feb. 7 high is now about 8 percent. The ASX 200 met its year-to-date closing peak on May 2–4435.9072–but has sold off hard and fast, a decline of 6.1 percent in exactly two weeks.

Encouragingly, the 20 stocks that comprise the Australian Edge Model Portfolio outperformed on this day of days, declining an average of 2 percent. The 10 Conservative Holdings lost 1.3 percent, while the Aggressive 10 were down 2.7 percent. Standout include Conservative Holdings APA Group (ASX: APA, OTC: APAJF), which was up 0.8 percent on the day, and AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY), which was up 0.5 percent.

APA and AGL–both original members of the AE Portfolio–were two of just 12 stocks in the S&P/ASX 200 Index to post green numbers on Wednesday in Sydney.

Aggressive Holdings Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY), which shed 4.3 percent, and BHP Billiton Ltd (ASX: BHP, NYSE: BHP), which was off 4 percent, led to the downside.

The Australian dollar, which sank below parity with the US dollar earlier in the week, is actually holding steady just below USD1, even as fear continues to pull people away from assets perceived to bear more risk. At last look the value of the Australian dollar was USD0.9939.

We have more on APA Group and its ongoing attempt to acquire the pipeline and energy infrastructure assets of Hastings Diversified Utilities Fund (ASX: HDF, OTC: None) in the weekly Roundup of significant news on Portfolio Holdings, which is available to Australian Edge subscribers.

As for AGL, the stock stood out to investors probably in anticipation of a positive decision from the Australian Competition and Consumer Commission (ACCC) on its proposed acquisition of the Loy Yan A power station. This decision is expected on May 24, and ratification would provide a significant boost to AGL’s fiscal 2013 earnings.

Newcrest, the No. 3 gold producer in the world, is a relatively low-cost miner that’s been hampered by operational problems at a key mine that are the legacy of the facility’s former owner. Management has issued a series of revisions to fiscal 2012 output guidance, as rainy weather hasn’t helped matters.

But costs remain well under control, particularly in light of the nature of its difficulties and the extent to which it’s had to mitigate issues at the key Lihir mine in Papua, New Guinea. Newcrest, like other gold mining stocks, has lagged the metal dramatically since September 2010. From here the story is about upside, as my AE Co-Editor Roger Conrad noted in the May 2012 issue, because “we can win from either recovering gold prices, an improvement in the mining stock/gold performance spread and/or improved results at Lihir.”

APA and AGL illustrate the point that solid businesses that continue to execute–and the people who own them–will be rewarded by the market. APA is priced to yield a cool, consistent 7 percent-plus, while AGL pays a reliably growing dividend that right now equates to a 4 percent-plus yield on the ASX.

Newcrest’s experience on the ASX shows what can happen to companies seen to be stumbling amid the rising tide of fear. Whatever happens in Greece and Europe–and whatever’s happened to this point–Newcrest remains a profitable company that also pays a reliable, growing dividend. In fact management recommended and the board of directors approved a 20 percent increase in the interim dividend declared Feb. 9, 2012, over the payout for the prior corresponding period.

BHP, for its part, is a great starting point for a discussion of perception, misperception and crappy headline writing, auto-generated or not.

When I awoke this morning at 4:15 a.m. for my 5 a.m. swim I grabbed my BlackBerry, which doubles as my alarm clock, cut the aggravating noise then scanned my e-mail. Courtesy of The Australian–which is good enough to provide news updates directly to my in-box, this “Business Briefing” at 3:27 a.m. my time–I learned via a subject line that “BHP pulls $80bn growth spend.”

The purpose of headlines/subject lines is to grab attention. I get it; I do it. But I like to think my attempts inform at the same time they entertain and/or titillate. The Australian did in fact provide a little extra energy in the form of anxiety as I plowed through my workout this morning, but as I suspected and then learned upon my return and after breakfast with my girls its subject line clearly lacked nuance.

BHP Chairman Jac Nasser did pull in the reins a bit on CEO Marius Klopper’s forecast of an USD80 billion budget to expand its iron ore, coal, energy and base metals divisions over the next five years. What he said to reporters following a lunch meeting in Sydney, according to Reuters, was, “It is all about appropriate allocation of capital. When Marius (Kloppers) talked about the USD80 billion, the environment was different.

“We should pause, take a deep breath and wait and see where the pieces fall around the world.” Although Mr. Nasser replied, “No,” when asked if BHP would spend USD80 billion over the next half-decade, he did not announce a cut in capital spending. He did say, as you and I should expect–demand, really–that BHP was re-thinking its expansion plans “every day.”

BHP’s 4 percent slide in May 16 trade on the ASX in Sydney is akin to Newcrest’s selloff in that it follows a series of negative comments from upper-level decision-makers, in the former’s case about near- and medium-term demand from key markets for its output. But the long-term story remains intact.

As I write in a Sector Spotlight on the company in this month’s Australian Edge:

Motivation for BHP is the inexorable trend toward urbanization sweeping China and other developing Asian economies. By 2030, according to the Population Division of the Dept of Economic and Social Affairs of the United Nations Secretariat, 62 percent of 1.5 billion Chinese will live in big cities, up from 47 percent of 1.4 billion in 2010 and 27 percent of 1.1 billion in 1990. By 2050 urbanization will reach 73 percent.

India, meanwhile, which in 1990 posted an urbanization rate of 25 percent of its 900 million citizens, reached 30 percent of 1.2 billion in 2010. By 2030 it will be 40 percent of 1.5 billion, by 2050 54 percent of 1.6 billion.

A 2009 McKinsey Global Institute study forecast that by 2025 225 Chinese cities will have more than 1 million residents. For comparison’s sake Europe currently has 35 cities of a million or more people.

This has enormous implications for resource consumption. Five billion square meters of road will be paved, and 170 mass-transit systems could be built. Forty billion square meters of floor space will be built by then, in 5 million buildings. And 50,000 of these structures are likely to be skyscrapers.

China is on course to construct the equivalent of 10 New York Cities over the next decade and a half.

This is the transition of emerging economies from investment- to consumption-led growth.

BHP is as well placed as any company in the world to benefit from this transition.

The Roundup

While the S&P/ASX 200 Index was selling off the MSCI Asia Pacific Index fell as much as 2.7 percent to an intraday low and a mere 0.2 percent away from wiping out its year-to-date gain for 2012. This broader index is now at its lowest level since Jan. 9, as 873 components declined, 111 advance and 20 were unchanged.

The Australian economy and Asia at large are much more sensitive to what happens in Europe, where questions about governing Greece–from outside and now, apparently, inside–loom and the status of the home of democracy within the European common market and its use of the euro roils markets.

On a positive note, data from what remains the most important economy in the world continue to confound–to the upside.

The US Commerce Dept reported Wednesday that US housing starts rose to a better-than-expected seasonally adjusted annual pace of 717,000 homes in April. This 2.6 percent increase was from an upwardly revised March figure and pushed starts to near January’s three-year high of 720,000. Construction rose for both single-family homes and apartments.

Building permits fell last month from a three and a half year high to a seasonally adjusted annual rate of 715,000, but this decline was driven by a 23 percent drop in the apartment category, which is historically more volatile than single homes. Permits for single-family homes rose almost 2 percent.

This is not an all-clear for housing. At best we’re scraping bottom, as construction and permits are still at about half the pace considered healthy. Solidifying data, in light of decent job growth, provides some hope of eventual recovery from the 2007 collapse of the housing market.

The US Federal Reserve provided its own positive contribution via its monthly Industrial Production and Capacity Utilization report. On Wednesday the central bank reported that output from US factories, mines and utilities surged 1.1 percent in April, the biggest gain since December 2010 and better than Wall Street’s consensus forecast for a 0.7 percent increase.

The April report was strong across the board: The overall figure was boosted by mining production, auto manufacture and a higher utility output.

Capacity utilization–a measure of “slack” in the economy–rose to 79.2 percent in April from 78.4 percent in March, the highest reading since this still lumpy, jagged and underwhelming recovery began.

A significant part of the rationale for Australian Edge is that over the long term the Australian dollar will be stronger relative to the US dollar. Because of what  will likely have to be done in the short and medium terms to cope with lackluster growth as well as the longer-term choices that will have to be made to cope with past decades’ profligacy, the US dollar is subject to siege. Right now it remains the most liquid denomination, the safe haven of choice for investors of all nationalities and the world’s reserve currency. Rising fear will drive investors to dollar denominated assets.

But the US fiscal situation and recent monetary policy suggest erosion of all three of the elements that make the buck desirable over the longer term. The Australian dollar, with the backing of low levels of public debt, a central bank still practicing traditional central bank-like actions and resources that will remain in high demand for decades, stands to benefit.

In other words, this decline below parity for the aussie in relation to the US dollar represents an opportunity to establish positions in high-quality Australia-based dividend-paying stocks so the “currency factor” will have an overwhelmingly positive impact on rising share prices and regular payouts.

One of our favorites, APA Group (ASX: APA, OTC: APAJF), recently dipped below USD5 on the Australian Securities Exchange (ASX) after its biggest shareholder unloaded its 17.3 percent stake in the natural gas pipeline and infrastructure company. The move by Malaysia’s state-owned oil company Petroliam Nasional Berhad, better known as Petronas, was made to rationalize its investment portfolio according to an explanation it provided APA.

Late last week the company announced that the Australian Competition and Consumer Commission (ACCC) had launched a “market inquiry” into a new “undertakings package” provided to the ACCC by APA in response to the ACCC’s “Statement of Issues” regarding APA’s proposed takeover of pipeline owner Hastings Diversified Utilities Fund (ASX: HDF, OTC: None).

APA’s revised “undertakings,” or actions it will take to make sure the deal goes through, include plans to divest the Moomba Adelaide Pipeline System on acquisition of effective control of Hastings and to ensure a right for competitors to connect to the South West Queensland Pipeline.

In the view of APA Managing Director Mick McCormack this package “resolves all the substantive competition concerns raised.” Mr. McCormack reiterated his stance that APA “will continue to work constructively with the ACCC” to obtain ACCC approval and to acquire Hastings.”

On May 15APA extended the deadline for its off-market offer to Hastings shareholders from May 31 to Jul. 31, 2012, the third such extension. It also waived a condition that made consummation of the deal dependent on approval by the Australian government under the Foreign Acquisitions and Takeovers Act.

Hastings shareholders can now get paid without being subject to further government review. According to APA its offer and “any takeover contract” arising from it are free of this condition.

These moves are in response to a competing bid for Hastings announced May 15 by Pipeline Partners Australia, a consortium that includes Canada’s Caisse de Depot et Placement du Quebec and Utilities Trust of Australia. This consortium has made a bid of AUD1.25 billion, or AUD2.35 per security according to the fund that manages Hastings Diversified Utilities.

APA’s offer is AUD0.50 in cash and 0.326 shares of its stock for each share of Hastings Diversified. At the time it was originally made the offer had an implied value of AUD2 per Hastings share. Based on APA’s AUD4.97 closing price May 16 on the ASX the implied value is about AUD2.12 per Hastings share.

As of May 15 APA owned 21.14 percent of Hastings, a total of 112,018,334 shares out of 530,001,072 issued by Hastings.

The new offer is clearly better at first glance. But the Hastings assets and their current owners will realize significant value by attaching to APA. Each of Hastings’ pipelines can be connected to one or more APA lines, forming what APA described in its original offer “a natural fit” with its existing infrastructure.

Consummation of an APA-Hastings merger would result in an energy infrastructure business with unmatched scale in Australia as well as a company with a clear strategic focus on natural gas transmission. The combined entity would own in the neighborhood of 15,000 kilometers of natural gas pipelines crisscrossing Australia proper. The Hastings assets on their own comprise about 2,445 kilometers of lines.

APA’s ability to execute will also benefit Hastings shareholders. APA outperformed Hastings in the market by more than 100 percent in the 10 years leading up to the original December 2011 offer, probably a result of its self-management of operating assets. A key difference as well is the absence of outside management fees, which will persist for Hastings should this new competing offer win the day.

When you buy a stock you’re buying a management team. Hastings shareholders should be mindful of the long-term implications of matching up with a group of people with a verifiable track record of managing and operating pipeline assets.

Utilities Trust of Australia may know Australia; but it, too, is an investment company that takes minority stakes in infrastructure projects including airports, roads, ports and agriculture. The Caisse manages public pension plans in the Canadian province of Quebec. There’s no particular expertise here. O course Hastings shareholders won’t care about what happens to these assets once they’re cashed out–if they’re cashed out–at the higher offer.

But stakeholders–including Australians at large–certainly have an interest in assets of this type falling into the right hands.

Validating its discipline APA has to date not upped the financial terms of its offer. It has taken steps to make the deal more palatable to Australian regulators, and it’s revised or eliminated conditions to make it easier for existing Hastings shareholder realize better value. These folks may be happy in the short run with an acquirer willing to overpay in a heated environment for energy infrastructure assets. But over the long term APA’s proposition is much more substantial.

That’s why we like, particularly now as it’s trading below USD5.

APA Group, yielding 7 percent-plus on the ASX and the US over-the-counter (OTC) market as of May 16, is a strong buy up to USD5.50.

Here’s how the AE Portfolio performed on a Holding-by-Holding basis on the Australian Securities Exchange (ASX) on May 16 in Sydney, when the benchmark S&P/ASX 200 Index shed 2.4 percent during its worst day of 2012.

Conservative Holdings

• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–0.5 percent gain
• APA Group (ASX: APA, OTC: APAJF)–0.8 percent gain
• Australand Property Group Ltd (ASX: ALZ, OTC: AUAOF)–2.2 percent loss
• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–2.3 percent loss
• Cardno Ltd (ASX: CDD, OTC: COLDF)–1.2 percent loss
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–2.3 percent loss
• Envestra Ltd (ASX: ENV, OTC: EVSRF)–1.3 percent loss
• M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF)–1.6 percent loss
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–2.2 percent loss
• Transurban Group (ASX: TCL, OTC: TRAUF)–0.8 percent loss

Aggressive Holdings

• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–4 percent loss
• GrainCorp Ltd (ASX: GNC, OTC: GRCLF)–2.9 percent loss
• Iluka Resources Ltd (ASX: ILU, OTC: ILKAF, ADR: ILKAY)–2 percent loss
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF)–1.9 percent loss
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–4.3 percent loss
• New Hope Corp Ltd (ASX: NHC, OTC: NHPEF)–2 percent loss
• Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–1.7 percent loss
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–1.7 percent loss
• Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–3.8 percent loss
• WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY)–3.2 percent loss

Look for a review of Aggressive Holding GrainCorp Ltd (ASX: GNC, OTC: GRCLF) in next week’s issue of Down Under Digest.

Conservative Holdings

• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–Aug. 22, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• APA Group (ASX: APA, OTC: APAJF)–Aug. 21, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Australand Property Group Ltd (ASX: ALZ, OTC: AUAOF)–Jul. 26, 2012 (confirmed, CY/FY 2012 1H, end Jun. 30, 2012)
• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–May 2 Down Under Digest
• Cardno Ltd (ASX: CDD, OTC: COLDF)–Aug. 16, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–Aug. 21, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Envestra Ltd (ASX: ENV, OTC: EVSRF)–Aug. 27, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF)–Aug. 29, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–Aug. 9, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Transurban Group (ASX: TCL, OTC: TRAUF)–Aug. 2, 2012 (confirmed, FY 2012, end Jun. 30, 2012)

Aggressive Holdings

• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• GrainCorp Ltd (ASX: GNC, OTC: GRCLF)–May 22, 2012 (confirmed, FY 2012 1H, end Mar. 30, 2012)
• Iluka Resources Ltd (ASX: ILU, OTC: ILKAF, ADR: ILKAY)–Aug. 23, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF)–Aug. 20, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–Aug. 13, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• New Hope Corp Ltd (ASX: NHC, OTC: NHPEF)–Sept. 20, 2012 (estimate, FY 2012, end Jul. 31, 2012)
• Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–Jul. 24, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–Aug. 23, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–Aug. 8, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY)–Aug. 29, 2012 (estimate, FY 2012, end Jun. 30, 2012)