Australian Investment Blog

WHAT MATTERED TODAY

The market opened reasonably well this morning, largely underpinned by buying across the commodity stocks however as the banks rolled off from their earlier highs, the index followed suit. Kogan (KGN) again was under the pump down around 11% on the session with the fallout from yesterdays’ earnings ‘hose down’ still playing out. There will be a point to step up and buy this stock however given the strength in downside momentum, it may take a few more days for the selling to wash through. The $US earners were also on the nose today, given the recent weakness in the US currency - the likes of Resmed (RMD), CSL and Cochlear (COH) in the healthcare space all down between -1.6% % -2.09% while Macquarie (MQG) was off by 0.56% ahead of their AGM tomorrow.

Another day were the ASX 200 remained in its tight +/- 100pt trading range, with the pull of a strong US reporting session being offset by a growing consensus that the market is in the final stages of 9+ year bull market. Hamish Douglas of Magellan fame the latest to talk about a bearish scenario playing out, with a 20% correction on the cards. The roll out of fiscal stimulus (tax cuts) in the US along with a very tight labour market could stoke wages growth and therefore inflation, putting in place the ingredients for the ultimate top in equities as the Central Bank is forced to raise interest rates at a quicker rate than the market is comfortable with.

Anyway, as we’ve discussed in recent notes, tops are very hard to predict and can take time to play out. In the interim, we’re nibbling away at some shorter term positions that are less correlated to the overall market, while offsetting market risk by holding some negative facing ETFs with the view of increasing our weightings here into any further strength.

Overall today, the ASX200 lost -18points or -0.29% to close at 6247 – Dow Futures are currently trading up 1pt. We remain neutral here, with the trigger to turn more bearish at 6140 on the XJO.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Broker Moves; Morgan’s have published a more upbeat assessment of the retail landscape saying that Amazon’s entry to Australia has yet to trigger any discernible erosion of incumbent retailers’ sales. They like specialty retailers like Adairs, Apollo Tourism & Leisure, Baby Bunting and Noni B on less Amazon exposure + “solid” growth prospects. I was on the box with Chris Macdonald from Morgan’s today and he was singing the praises of Adairs (ADH).

Elsewhere, Citi are saying that Downer is the best placed stock to benefit from Australia’s construction boom, saying that total, rail, road and resources capex to reach A$38b through FY22. DOW was up +1.26% today however CIMIC (CIM) which we’ve targeted as a buy below $47 put on an impressive +4.68% today to close at $49.83!

Cimic Group (CIM) Chart

Elsewhere:

· CSR Upgraded to Neutral at Evans and Partners; PT A$4.39

· Adelaide Brighton Cut to Negative at Evans and Partners

· Resolute Mining Downgraded to Sector Perform at RBC; PT A$1.50

· Bapcor Downgraded to Hold at Morgans Financial; PT A$6.86

· AP Eagers Downgraded to Hold at Morgans Financial; PT A$8.92

· Accent Group Upgraded to Hold at Morgans Financial; PT A$1.39

Telstra (TLS) $2.73 / -1.09%; Telstra eased today following an S&P Global Ratings report that attacked the NBNs long term viability, forecasting a significant write-down of its assets as the regulatory framework that protects it unwinds. In theory, this should be a positive for big telcos such as Telstra, as competition opens up it will provide an opportunity for companies with robust communications infrastructure in place – however S&P argue otherwise. A write-down would likely trigger further government spending in an effort to get NBN to compete with the telcos one way or another, and competition is inevitably bad for other businesses. Realistically, however, the NBN model appears to be broken, and short of a complete redesign, it is unlikely to achieve the 75% market penetration of home broadband it has forecast. Telstra now has the opportunity to build a 5G network to compete with NBNs infrastructure and gain a majority share of the predicted 25% of households that will only have fixed wireless or mobile only broadband in the 2020s – in our view, Telstra currently has upgradable infrastructure to offer this service on the widest scale. Optionality is starting to present itself.

Telstra (TLS) Chart

OUR CALLS

We added Healthscope (HSO), Mineral Resources (MIN) and IRESS (IRE) to the MM Growth Portfolio today

Have a great night

James / Harry & the Market Matters Team

Disclosure

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