Market flirts with 5900 but falls short (just)
Another decent session for Aussie stocks with the market grinding higher for a third straight day, although with some reduced momentum. Since the most recent low 8 days ago of 5681, the market has put on +215pts or +3.78% in a run led mainly by the banks, while the resources have played a supporting role…1 day left in March and the index is up by +3.2% after closing out the month of Feb at 5712.
So from an index point of view, we’ve clearly had a good rally this month and that comes off a decent February as well where the market put on +1.62% and Monday kicks off April which as we’ve written at length is the most bullish month for Aussie Equities with an average gain of ~1.60% - we’re clearly in a sweet spot right now but don’t get too comfortable. The old mantra of sell in May and go away has validity with May being the weakest month of the year. At the moment, we’re well invested in sectors that are benefit from the market’s recent rally however we will be sellers rather than buyers into this strength. The AM report today talked about ‘not chasing’ the mkt and at this stage, we think that’s wise.
As suggested above, banks have been the cornerstone of this recent rally but they’re now starting to look reasonably expensive. More on this below + coverage of Bank of QLD’s result today.
Today the market chopped around more than we’ve seen in the last few sessions and the short term momentum is clearly waning somewhat. Some short term consolidation before a push up towards 6000 seems likely. We had a range today of +/- 24 points, a high of 5899, a low of 5875 and a close of 5896, up +22pts or +0.39%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
BANKS; BOQ reported numbers this morning that on the face of it, were slightly below markets expectations – about a 2% miss on cash earnings, a 5% miss on earnings per share, dividend was inline, capital was inline. The stock was off early however the CEO did a good job on the conference call to talk up future prospects. The first half result was impacted by weak loan growth but they reckon in the 2H17 that will all change, and they gave some upbeat guidance here.
We thought about taking a position in BOQ this morning however we’ve already got good exposure to the sector and the quality of the result today was a little soft. We’ve got the CEO & CFO in on the 3rd April so will get some deeper first hand insight then. The stock goes ex-divi on the 20th April and is the cheapest in the sector. For those looking for a play on the banks, that don’t hold positions in CBA, NAB and ANZ as we do, then BOQ looks the most compelling prospect in a sector that’s been pretty hot in recent times.
Bank of QLD (BOQ) Daily Chart
Staying on the bank theme, Shaw Research put a few interesting charts on the sector recently which we’ve borrowed here, essentially highlighting a sector that’s no longer cheap but probably has some room for higher levels into the seasonally strong period of April.
Chart 1 – looking at PE of the various banks – CYB super cheap but no dividend and exposed solely to the UK
…as a sector it’s trading about 12% expensive with a forward PE of 13.6x versus long term average 12x – so a bit rich but not at extremes….
And in terms of yield, it’s about 8% expensive given the sector typically trades on 5.9% yield and is currently at 5.4% - still not extreme though.
So, the takeout clearly is that banks aren’t cheap here, yet they’re not exceptionally expensive. A very similar spot to where we find the broader market in. We remain bullish in the short term however we’ll have one finger on the sell button as these valuations are stretched further. CBA will likely be the bank we’ll cut towards the end of April, locking in a +25% profit nearer to $90 for the Market Matters portfolio.
Have a great night,
The Market Matters Team
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