Author: james Carter
Equities Plunge on “Potential Grexit”, what next?
• It was a bit of a roller coaster today, after the market dropped 29 points on the opening, to then rather shakily rally to a better close on the last day of the financial year. The ASX 200 finished the day up 36 points (+0.7%) to 5,459.• Kathmandu Holding (KMD) were a stand out today after Briscoes Group Ltd announced that they were initiating a takeover bid after accumulating a 19.9% stake – 4.99% acquired overtime and a further 14.91% shareholding from a number of institutional holders at NZ$1.80/share. KMD closed 32c higher (+25%) to $1.57.• China’s Shanghai Composite is currently up 4% as its Government has further stimulated the stock market by announcing that its State Pension Fund will be authorised to invest in equities for the first time. That’s an extra US$493b!• We look forward to the New Financial Year and the opportunities ahead of us!
**The US Futures have opened down ~1.8% on the Greece news, including their banks and Stock exchange closed on Monday.**
• A blood bath comes to mind when talking about the ASX 200 today. Our market was one of the first to react to the Greek tragedy of the weekend and we wait to see what the European and U S markets can do. The benchmark finished the day down 123 points (-2.2%) to 5,422.• There were also heavy losses in Asian market. Japan is currently down 2.8% and Hong Kong down 2.7%, while Shanghai down only 0.6%.• The Consumer Staples continues its downtrend, with Slater & Gordon (SGH) – yes, in with the likes of Woolworths (WOW) and Metcash (MTS), was down a massive 25% to $3.78, whilst Harvey Norman (HVN) ended 4.4% to $4.59. Myer (MYR) continued to suffer – down 4.3% to $1.21.• As one would imagine, the banks were hit really hard. Commonwealth Bank (CBA) lost $1.96 (-2.3%) to $84.69. Note, CBA is now close to yielding 10% on a grossed up basis for the next three dividends. Suncorp Group (SUN) was down 27c (-2.0%) to $13.33 (which is yielding 10.5% gross for 2016 dividends)
Over the last 5 trading days, 4 stocks in the ASX200 have dropped over 10% – Seek (SEK) -13.3%, Flight Centre (FLT) -21.8%, Slater & Gordon (SGH) -*17.9% and IOOF Holdings (IFL) -13.2%. Not surprisingly, almost 100% of questions the team at Market Matters have received this week have been directed at whether we purchase any of these ‘bashed up’ stocks – everyone likes a bargain. Interestingly, none of these stocks are in the sectors that have been hammered over the last 12 months – Supermarkets, Iron Ore and Energy. All four stocks have delivered news that was received clearly very negatively by the market, the big question is, are they providing opportunities? We recently purchased Ansell (ANN) after it fell ~10% over the month on concerns on FX impacts on profitability, this stock had been on our shopping list for a while. Alternatively SEK was also on our radar, but the news made us take a step back, as we evaluated the risks to the share price as future growth gets questioned.
• The ASX 200 was hit by heavy selling pressure from the opening bell, led by the SPI futures. Within the first 45 minutes, it had already lost 117 points. Buying stemmed the flow, but it continued to range trade between 5555 and 5548. The broader market finished the day down 88 points (-1.6%) to 5,544.• There were heavy losses in most sectors, with Utilities fairing the worse, down 4% to 6,508. APA Group (APA) was the heaviest casualty down 51c (5.7%) to $8.38 and AGL Energy (AGL) down 49c (-3%) to $15.82.• The Energy Sector was close behind the Utilities performance, with Worley Parsons (WOR) down -7.2% to $10.10 and Origin Energy (ORG) down -6.5% to $11.70.• For a complete change there was a glimmer of light in the Consumer Staples, after it was rumoured that Woolworths (WOW) looked to be a perfect candidate for a buyout by Private Equity firm KKR. WOW closed up $1.01 (+3.8%) to $27.39• Please watch out for the weekend report.
Five days ago, Gold had a $US25/oz. surge on concerns over Greece and swings in the $US enticed us to consider buying back into Regis Resources (RRL) as a trade. Last night, the Dow fell 178 points on renewed Greek concerns (getting boring), but gold reached its lowest level in 3 weeks, clearly not bullish price action. Infact, gold is still trading below the spike low it reached in June 2013, this implies to us at some stage this year a move to test US$1,100/oz, or lower is likely. With US interest rates set to rise over the next 12-18 months and inflation not raising its head,there is little excitement for gold buffs at present barring a “left field” global disaster.
Five days ago, Gold had a $US25/oz. surge on concerns over Greece and swings in the $US enticed us to consider buying back into Regis Resources (RRL) as a trade. Last night, the Dow fell 178 points on renewed Greek concerns (getting boring), but gold reached its lowest level in 3 weeks, clearly not bullish price action. Infact, gold is still trading below the spike low it reached in June 2013, this implies to us at some stage this year a move to test US$1,100/oz, or lower is likely. With US interest rates set to rise over the next 12-18 months and inflation not raising its head,there is little excitement for gold buffs at present barring a “left field” global disaster.
• The broader market in Australia broke its 4-day winning streak, the ASX 200 lost 54 points (-1%) at 5,632 on the second last trading day of the Financial Year.• A choppy session was seen across board, particularly in the Banking sector. Commonwealth Bank (CBA) closed 0.1% higher at $87.29, whilst the remaining 3 of the ‘big 4’ lost ground e.g. Westpac (WBC) lost 1.1% at $33.31.• Law firm, Slater & Gordon (SGH) took another hit today, down 17.5% $5.06. ~$333m has been wiped off SGH so far this week! We have no interest at all in this company at present.
With the End of our Financial Year only a few days away and with August company reporting season approaching fast, we are in the “eye of the storm” of corporate confessions e.g. Seek (SEK), Woolworth (WOW) and now Flight Centre (FLT). Talk of a potential downgrade also sent Ansell (ANN) shares down aggressively on Monday where we became a happy buyer. We are witnessing the perfect example of why investors must research what stocks they wish to purchase and at what levels, hence when news is released it can be assessed and acted upon. We were pleased to see ANN rally over 3% yesterday after our purchase, yet SEK which we decided to avoid, only bounced 0.4% on a day that the AX200 rallied 1.35% – of course one day does not make a summer! Let’s take a look at these 3 stocks again:
Really bullish, there's more to go in the reflation rally
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