Stocks chop around early before rallying into the close
Stocks were higher today although trade was choppy particularly in the morning with better than expected retail sales data offset by weakness in the Caixin Chinese Manufacturing gauge which printed a very weak 49.6 versus expectations of 50.1. Interestingly, the official Chinese print out yesterday came ahead of expectations and importantly, was showing expansion – the vagaries of Chinese number crunching shine through again! Iron Ore was clobbered again today in Asian trade, down -4.20% at time of writing and that put pressure on the Iron Ore stocks today – Fortescue (FMG) the worst of the majors down -3.71% to close at $3.67 and we used todays weakness in FMG to add to the MM portfolio as a high risk BUY at $3.665. Interestingly, the stock was hit early, recovered well before being sold after the weak Chinese data, however the resilience into the close in the face of negativity, and importantly, the lack of any ‘big’ selling post the China data is a good indication that sellers are drying up here, and we have a high chance of a good bounce. When FMG moves, it can do so very quickly.
Fortescue Metals (FMG) Daily Chart
On the market today volatility was high early on with the index chopping around by +/-29 points, a high of 5753, a low of 5709 and a close of 5738, up +13pts or +0.24%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
We touched on healthcare stocks in the morning note today discussing the potential for regulatory risk given the Govt’s budget issues, concluding that we’ll give them a wide berth for now…impeccable timing given there were a number of them in the top performers list today!! Strong rally in Healthscope of +5.94% to close back at $2.14 while Primary Healthcare was also strong adding +6.25%. News is that Primary may buy Healthscope’s medical centres that are on the market for around $100m. HSO have been keen to offload for a while and if done this might open the door for increasing rumours around the potential for a restructure of the HSO property portfolio, either by spinning off the property assets from the listed vehicle or through a complete private equity takeover with the same outcome – but off market. We actually doubt this will happen internally and a takeover would be the only realistic avenue for this, however 20 times and an anaemic growth profile in the near term the stock is probably not cheap enough. If we were to see a downgrade and a gap lower in the share price, it would likely be a very good buying opportunity!
Healthscope (HSO) Daily Chart
Henderson Group (HGG) continues to perform strongly rallying again today (+3.24%) as it comes on the radar of a wider investment community post the share consolidation and Janus merger. We did trim back to a 5% portfolio weight recently (from 8%) to reduce stock specific risk, however importantly we remain keen on the stock moving forward.
Henderson Group (HGG) Daily Chart
Elsewhere, golds were good today with Northern Star (NST) up more than 4.03%. One of the themes that was covered at the Market Matters Live event on Tuesday evening was around the rise of passive index funds. Passive funds have clearly done well over time (given the markets have done well adding +250% from the depths of the GFC on March of 2009) however we enter a period now where risks are increasing, the chances of deeper market corrections at some point have firmed. The rise of passive investing is also prevalent in the commodity space with many of the commodity ETFS having expanded in size, and they now start to have a large impact on how stocks within them trade. For instance, the Market Vectors Gold ETF has the following components…Of interest is something like Evolution Mining (EVN) with the ETF owning 88.6m shares in the miner. Tweaks to the size of the ETF as demand ticks up (or on the flipside) can have a big bearing on EVN share price as it creates forced buying or selling. EVN traded 9.8m shares today which is just 10% of the total holding in this ETF!!
Source; Bloomberg
Have a great night,
The Market Matters Team
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