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Author: james Carter

• It was a soft start in the ASX200 this morning, however investors seemed to have shrugged off concerns with Greece’s debt and the potential for a Eurozone exit, as well as bets are being weighed on the FOMC decision on US interest rates tomorrow morning at 4am. The ASX 200 managed to rally 61 points higher (+1.1%) to 5595.• Woolworths (WOW) had an interesting session today after downgrading its earnings forecast, along with the CEO stepping down with jobs to go. WOW traded as much as 76c higher today, only to ease back and close 4c lower (-0.2%) at $26.80. We remain bearish WOW.• The ‘big 4’ banks contributed to most of the gains in the broader market. Commonwealth Bank (CBA) closed $1.88 (+2.3%) higher at $84.26 and ANZ closed $0.69 (+2.1%) at $32.86.• In the Telco sector, Vocus (VOC) lost 5.2% to $5.69 compared to its competitors, such as M2 Communications (MTU), up 2.4% at $10.89.

Yesterday we welcomed the news that the shareholders of AMM and VOC voted in favour of their $1.2bn merger. There was an amazing 97% turnout with people voting against TPG’s bullying tactics. My feeling as a VOC shareholder was that TPG were not vaguely considering the shareholders and the market has let them know that they don’t appreciate it. TPG are now likely to attempt a legal protest on the 23rd of June but hopefully common sense will prevail – for once please let’s put shareholders first. This news should be positive for the VOC share price leading me to consider if I want to switch into other parts of the strong Telco sector.

• A quiet session in the broader Australian Market was witnessed today, the ASX 200 closed only 3 points lower at 5536.• Investors in the insurance sector were caught by surprise with an announcement from Insurance Australia Group (IAG) that Warren Buffet’s Berkshire Hathaway will acquire a $500 million strategic stake in and partnership with IAG. The deal involves a 10 year 20 per cent quota share agreement that IAG says will reduce its earnings volatility and capital requirements and will see Berkshire Hathaway take a 3.7 per cent stake in IAG via a $500 million placement.• The Banking sector outperformed most, particularly Westpac (WBC), ending its day 1.8% higher at $32.30. WBC’s rally was mostly driven by its announcement of selling its BT Investment Management (BTT) stake, generating a $600-$700m gain after tax.• The Iron Ore sector was quite the contrary, Fortescue Metals (FMG) lost 4.9% at $2.32 and RIO Tinto down 2.4% at $55.91 as Iron Ore traded in Asia was 1.5% lower.• Investors flocked to the Gold sector, where its commodity is also known as the ‘Safe Haven’ Asset, traded higher as investors remain uncertain with the global picture. i.e. Greece’s debt issues with its creditors. Newcrest Mining (NCM) closed 1.0% higher at $13.22 and Regis Resources (RRL) closed 3.1% higher at $1.15.• The ‘Telco’ Sector was the strongest link today, Vocus (VOC) – a stock we currently hold, resumed trading and closed 1.5% higher at $6.00. Please watch out for trading alerts.

The Chinese equity market is now worth over $10 Trillion for the first time in history. The surge has been stimulated after China opened its borders to overseas investors, creating a gain of 60% in 2015 alone – see chart 1. Over the weekend, the Saudi Arabian stock market rose 1.3% prior to allowing direct access to foreign investors this week – see chart 2. The ASX200 has been knocked around 8% over recent weeks with “market talk” that the majority of the selling was used to fund gaining exposure to China. Hence the question of whether we will see selling in the Australia Energy Sector to fund some fund flow into Saudi Arabian stocks. Firstly, let’s revisit the 3 Energy stocks I watch carefully.

• After a weak lead from overseas over the weekend, our market recovered from its lows (-52 points at 5492) at the beginning of our session, to finish the day down only 6.5 points (-0.2%) to 5,538.• The major company news was the meeting of Amcom Telecom (AMM) shareholders, who have overwhelmingly voted in favour (72%) of a $1.2 billion tie up with rival Vocus (VOC), defying TPG Telecom’s (TPM) attempts to block the deal. Please watch out for live alerts as we currently hold VOC.• In other news Foxtel will take a stake of up to 15 per cent in Ten Network (TEN) at 15c a share, as part of a move expected to raise $154 million for the struggling free to air broadcaster.• The Financial Sector only just managed to creep into best sector stakes today, however the banks finished well. Australia New Zealand Bank (ANZ) +14c (+0.4%) to $31.85, Commonwealth Bank (CBA) +47c (0.6%) to $81.89, National Aust. Bank (NAB) +27c (0.8%) to $32.53 and Westpac +5c (0.2%) to $31.72.

Yesterday was very interesting for the Supermarket sector. The Australian ran an article focused on the German powerhouse, Lidl about to enter the Australian grocery battle.This increased competition is clearly going to pressure the margins/profitability of both Woolworths (WOW) and Coles (Wesfarmers – WES). Lidl has a similar business model to Aldi, with predictions now being made that these aggressive discounters will get ~20% of the Australian grocery market. However what I found interesting was on the same day, the AFR on-line led with a piece by a prominent Value Asset Manager that Woolworths was in its favourite 5 stocks to accumulate at current levels ~$27. However, on the same day, another prominent value investor, Roger Montgomery posted a blog basically saying that ”looking long term, the fundamental case against Woolworths, Coles and IGA continues to strengthen”. Hence, what do we think at Market Matters?

• The ASX 200 again followed suit with the US equity markets, ending slightly lower and trading on the sideline, down 11 points (-0.2%) at 5545.• Both the banking and iron ore sector contributed to the slight weakness in the Australian market today, Westpac (WBC) closed down 30c (-0.9%) at $31.67 and BHP Billiton (BHP) down 33c (-1.2%) at $27.90.• Weakness continued in the retail sector, with Myer (MYR) losing 5.5% to $1.30.• As per this morning’s report we expected further downside in the supermarkets, with Wesfarmers (WES) and Woolworths (WOW) ending 0.3% lower $41.31 and -0.6% at $26.93 respectively.• Please watch out for the Weekend Report tomorrow.

**The Reserve Bank of New Zealand (RBNZ) surprised all and cuts its key rate to 3.25%. RBNZ says further easing may be needed. Will Australia follow suit?**

• The ASX 200 followed through from the strength in the overseas markets overnight. Our market took a steady start to the day instead of the usual rush and continued to hold up very well throughout the session. The ASX 200 finished the day up 78 points (+1.4%) to 5,556.• The major news of the day was the release of the Australian Unemployment numbers at 11.30AM. Employment surprisingly jumped higher than expected by 27,000, with the unemployment rate falling to 6% from 6.2% last month.• The Australian dollar jumped on these numbers by 0.8% to a high of 77.81, but surprisingly the banking sector was well supported despite today’s data watering down the possible expectation of a rate cut in the near term. Commonwealth Bank (CBA) rallied $1.50 (+1.9%) at $81.41.• On overseas news, China released their Industrial Production figure for the year. The number came in better than expected at 6.1% (expecting 6%). A modest change for the better.• Woolworths (WOW) continues to be battered and fried, losing 1.3% at $27.08 as reports of another competitor besides Aldi is looking to join the Australian Dream.• In the Telco Space, Vocus (VOC) a stock we currently hold rallied 4.4% higher today at $5.95 ahead of the proposed $1.2b merger with Amcom due tomorrow.

Why a surging Chinese Stock Market has Hammered the ASX200

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