Banks – still the place to be this month
What Mattered Today
It seems the market wants to go higher after a weak open which saw the index off by around -46pts early before the banks led the recovery with the index closing on its highs. CBA added almost $1 from its $74.00 low, the other banks also copped some buying into early weakness while the miners chimed in, finishing down on the session but a long way from the lows.
CSL had their AGM today and the stock ended higher by 1% - they reaffirmed earnings guidance + confirmed they’d buy back another A$500m of stock– which was first flagged at their recent results. Not a bad effort from CSL given the US health sector was the weakest link in the US overnight and CSL had a low today of $104.40 before closing at 106.54.
CSL Daily Chart
Overall, we had a range today of +/- 41 points, a high of 5474, a low of 5433 and a close of 5474, off -5pts or -0.09%.
ASX 200 Intra-Day Chart
ASX 200 daily chart
Banks; October is a very bullish month for the banks with the average return for the sector +4% since we hosted the Olympics in 2000. We’ve quoted an average return for CBA of +6% for the month over the past 5 years and we’re significantly overweight the sector in our own portfolio – holding CBA, ANZ, WBC & BEN + we also have a decent position in Suncorp (SUN). Combined it accounts for more than 50% of the portfolio. If we’re trading seasonality we need to be conscious of when to get off the bus. We’re overweight the sector – which has served us well this month however we should be looking for opportunities to trim into strength – that’s what we’ll be doing.
Today was a good example of the underlying appetite for the sector with early selling more than offset by strong buying into the close.
Commonwealth Bank (CBA) Daily Chart
Vocus Communications (VOC) was again the source of headlines this morning after James Spenceley – the VOC founder and current Executive Director resigned along with Non-Exec Tony Grist. They put a proposal forward for new leadership (as in they wanted to replace the CEO) while they also wanted to shake up the board. No other support was forthcoming so they fell on their sword and resigned. The stock was down early by around 6% before buying stepped in and the stock rallied up from its $5.25 low to close at $5.49 – down -2.49% which is probably a good result. We’ve written about VOC at length – with our past commentary available here however there two obvious ways to think about this.
The negative stance would be one of concern given the high chance that some of the key tech staff on the network side (which was the VOC business) will follow them out the door, however, that’s probably unlikely given that Spenceley has gone in the funds management game.
The positive spin would be that it’s a good move, the destabilisation of the company will probably be over, the current CEO now has the support of the ‘entire’ board and if Spenceley had the overwhelming support of shareholders, the CEO would have been gone and the board rolled. That obviously wasn’t the case. Tony Boyd from AFR who’s been around for decades wrote a good article which supports the view’s that we’ve outlined above however two things are important here;
1. On the face of it, a move like this should have seen the stock down a lot
2. Buying into early weakness suggests the market - although clearly concerned – is seeing value.
This has been a horrible stock for the last few months – as has TPG Telecom (TPM) with the market simply taking the sword to them both. It’s such a quick passageway from the penthouse to the outhouse when things start moving against a stock/sector. Clearly, we think value is there and once the sideshow calms down, and we realise that this has not filtered into a big deterioration in earnings, then the stock should get some clear air and trade up.
Vocus Communications (VOC) Daily Chart
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