Citi see’s 25% drop in markets….ho hum! (LLC, CGF, RRL)
The Australian market edged higher again today with the index now up ~4.40% in the last 9 trading days – which is a big run if looked at in isolation however when considering the index traded in a tight 21 week range then a move of this magnitude shouldn’t surprise. That said, todays price action is starting to show signs of exhaustion and some consolidation would not surprise in the next few days as the markets looks to consolidate the new trading range. Analysts at Citi dominated the wires today with the headlines grabbing the attention of the afr.com which ran with the story of…..
We clearly need to pay our PR guys more money as MM’s call for a 25% correction surprisingly!!! did not garner the attention of the one called from Citi today. I think we’re more clear cut in our prediction which is predicated on simple statistics, with the market now in the 2nd longest bull market in history. Bull markets are broken when the market corrects by 20% or more, which is actually a fairly regular event, every 2.5 years in fact since the start of the century. We’ve now been 8years + so the call simply isn’t as BIG as it sounds. The issue now is that if this sort of scenario is being widely discussed / positioned for, then it’s less likely to play out. 2 examples of note last year with BREXIT and TRUMP – both scenarios led to a BIG drop in the mkt but in both instances the markets bounced back hard and fast as hedges unwound….the main message here, the more something gets talked about, the less likely it is to happen, or if it does, it won’t last long given mkt positioning.
In terms of Citi’s rationale, here goes…"I think it is remarkable how, on the one hand, central banks were so enthusiastic about distorting markets, and yet how they underestimate the magnitude of the distortionary effect of their policies – how sensitive markets are to their policies," King said.If financial markets do follow the past pattern – in which the price of assets such as equities and corporate bonds has risen in tandem with increased central bank liquidity – they are likely to flounder as soon as central banks scale back their monetary stimulus. "There's a huge degree of historic sensitivity," he noted. Source (AFR)
Big calls aside, the mkt edged up slightly however throughout the session we struggled to find buyers at higher levels and eventually, sellers got on top into the close….Just as I closed by intra-day shorts the mkt came off…Overall, the Utes did best followed closely by Healthcare which shows some risk appetite subsiding … while the Telcos provided most drag on the market – a range of +/- 19 points, a high of 5906, a low of 5886 and a close of 5890, fairly flat on the day, up 1pt or 0.02%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
Regis Resources (RRL) – we sold today at $4.00 after being patient for the last few sessions with the stock trading up to a $4.03 high before closing at $3.97 – a profit in a short time of 9.33%. A reasonable result and we think the gold space is clearly worth trading around the edges…
Regis Resources Daily Chart
Lend Lease (LLC) - was whacked today by 10.48% with the stock closing at $16.65. A combination of a weak update from a stock trading on a high valuation. Some will argue that fact as the PE is reasonably modest however there are so many parts to the Lend Lease business, with the FUM business worth more in terms of multiple than the construction arm which operates on slim margins and has inherently higher risk – so a sum of the parts a better guide. Anyway, today they announced the 25% sale of its Retirement Living business to APG Asset Management + it also noted a weaker outlook for the Construction business in 1H18 relative to the prior corresponding period, which could impact the composition of LLC’s FY18 result. Lastly, it announced a new JV in the USA to develop telecom assets. No earnings impact from these events/transactions was provided – also noting that LLC did not provide FY18 earnings guidance at its recent FY17 result which is typical for that business. A stock now on our radar…
Lend Lease (LLC) Daily Chart
Challenger Group Financial (CGF) – continues to run hard and may be at our $14 price target sooner rather than later following the very good annuity sales number yesterday as we covered...Go CGF!
Challenger (CGF) Daily Chart
Have a great night
The Market Matters Team
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