Australian Investment Blog

A big move up overnight in commodities especially Iron Ore saw the material stocks gap up on open this morning pushing the market to a high just 5pts shy of the 5800 mark we’ve been targeting in recent weeks. Around 1.30pm selling kicked in and the market tracked lower into the close – with the much loved iron ore stocks from this morning, looking a little bruised and battered by this afternoon. RIO for instance had a high of $69.80 before closing at $68.51 while Fortescue (FMG) traded up to a high $7.06 – it’s highest level since 2011 before giving back its gains to close on it’s daily low of $6.88. Market Matters subscribers received an alert this morning on Fortescue recommending a bearish option position with a $6 downside target. That trade is starting to take shape now with the stock around 12c below our entry price.

Fortescue Metals (FMG) Daily Chart

Whether it was weaker company reports, some less upbeat guidance or it’s simply a case of the market running too hot too fast, profits were locked in today, stocks sold and the market finished a long way from the session highs. We had a range today of +/-41 points, a high of 5795, a low of 5754 and a close of 5755, off -5pts or -0.10%. Technically, the 5800 was more or less met today and the decent reversal from the intra-session highs is a short term negative set up, particularly in the commodity space with both RIO and FMG now looking negative…

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

QBE Insurance (QBE) - has been in the headlines again on speculation of a takeover with the stock up another 2% today. We hold QBE in the portfolio as well as Suncorp with both companies benefitting from the murmurs! Where there is smoke there is usually fire so we presume there have actually been talks but nothing has come of it and it’s now being leaked to the press and QBE is arming itself with a defence team. Allianz, the big German insurer is the name floating around. It’s a $100bn market capitalisation company while QBE is $17bn or 17% the size of Allianz, so possible. Allianz are flush with cash at the moment with press reports of around $12bn in excess capital looking for a home….It seems we should continue to hold QBE

In terms of results today there were some of the more well owned stocks that reported and most of them finished lower by the end, however not before we saw some massive intra day swings play out.

Treasury Wine (TWE); delivered a very good set of numbers today and the stock was up smalls initially however their guidance for the second half which suggested slowing growth seemed to be the catalyst for some selling to kick in. Fund managers love this stock and the mkt is very long here. A similar story was JBH yesterday where the numbers were very strong, above consensus overall however when the stock is very well owned there is simply not enough new buyers to soak up the profit takers and the stock drops. TWE ended the day down 4.71% at $11.33 – down from the high of $11.91

Treasury Wines (TWE) Daily Chart

Cochlear (COH); Another much loved stock and a good result today but the stock was sold off by -3.59% - why? They reaffirmed full year guidance for $210 to $225 however the market consensus sits at $223m for the full year – which is the top of the guided range implying that there is some risk around consensus and we might see some ‘trimming’ by analysts as a result. Top line revenue was up 4% but 8% in constant currency terms which highlights the impact of the higher Australian dollar. All divisions were performing well however as we continually say, when everyone is positive a stock and there is even a hint/smell of less good news then profit taking is only natural and in this type of market, deep pullbacks can eventuate. We like COH but will be patient here for some more pain to play out. Shares closed at $128.95, a drop of 3.59%.

Cochlear (COH) Daily Chart

Challenger Group Financial (CGF); Another good result here and this continues to be a very good story for the longer term. Annuity sales over $1bn for the third consecutive QTR and the outlook remains good. The issue here, and the reason why the stock fell off it’s perch today is around capital. When CGF writes an annuity they need to hold capital against it – a lot more than banks would for a housing loan for instance. They said today they have PCA of 1.39x however their target range is 1.3x-1.6x – so they need to issue new capital which will likely be in the form of a Hybrid security then probably an equity raise at some point. This is simply part of their growing pains and will always be an issue for CGF.

Elsewhere, property stocks GPT and Folkstone Education (FET) both delivered inline results, and both were up on the day – Folkstone the best of the 2 adding more than 3%

Good to see Henderson Group (HGG) putting on +3.1% today

Have a great night,

The Market Matters Team

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday.

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All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 14/02/2017. 5.30PM.

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