Australian Investment Blog

WHAT MATTERED TODAY

The market was bid up strongly early on today however weakness crept in throughout Asia and we saw the local index tickle up against key resistance just above 6000 for the ASX 200. It simply feels like the current momentum in the mkt simply isn’t strong enough to see it punch through with any real force and sustain above the 6000 milestone. Given price action today, we may well see the market track lower in the short term (~5860 downside target) before winding up again for another test on the upside. We’re now approaching the back end of November so worthwhile looking at stats for December, a typically bullish month for equities;

1. The average gain for December since the GFC is an impressive +2.5%, with only the one negative year in 2011.
2. However this only tells half the story, in 3 out of the 8-years we formed a low mid-month before rallying strongly over 6% - in 2011 we rallied 5.8% from the start of December before losing all the gains.
3. The lows for December were at the start of the month 4-times and mid-month 4-times - in the anomaly of 2011 when the market was in “correction mode”, unlike today, the ASX200 rallied strongly initially which I have counted as “start of the month”.
4. In 6 out of the 8 years the high for December was in the last few days while in 2010 it was on the 23^rd, only in the unusual 2011 was the high early on the 5^th.
5. The average gain by Commonwealth Bank (CBA) during December, since the GFC, is +4.1% i.e. banks often regain their bid tone.

So, thinking about the above stats we clearly need to be positioned for more strength into the back end of the year, however it’s also worth noting that so far this November has only given us a -2.25% correction, less than half of the average since the dark days of the GFC. With only 3 trading days left this month it would appear that 2017 is potentially going to become an outlier from a statistical perspective. Overall, we remain bullish the ASX200 targeting a significant break over 6000 in 2017 / 2018 but a short-term correction down towards the 5860 area offers the best risk / reward buying opportunity.

On the mkt today, most buying was focussed on the Utility stocks which added +1.04% while on the flipside, Telstra led the Telco’s into the red. A range on the mkt today of +/-31 points, a high of 6009, a low of 5978 and a close of 5988, up +6pts or +0.10%.

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

TOP MOVERS

1.Telstra (TLS) – Was up early however made an announcement around lunchtime saying that NBN Co has delayed the HFC NBN rollout due to service issues. Basically, this is one part of the NBN rollout and it’s a bit hard to work out actual impact on earnings. The HFC part is about 15% of NBN activations so it will impact NBN payments on that side, however TLS will get to retain the customer longer which probably offsets that to some degree. TLS themselves working out the details and the initial share price reaction (down) versus the reaction when cooler heads prevailed (up) probably tells the story. The mkt continues to hate TLS however the obvious question becomes, who’s left to sell the stock that hasn’t already??? The stock was 2c lower today on news that could potential impact earnings by a few % . To me, the sellers are simply drying up here.

Telstra Daily Chart

2. Macquarie (MQG) – traded and closed above $100 today for the first time ever which got some press , as it should, however MQG at $100 is still reasonable value trading on ~14.3x forward and likely to yield around 5%. The last time MQG were at these lofty levels pre-GFC was in 2007 when it traded at $97 before hitting a $14 low amid grave concerns around its viability. It’s now a very different business than the pre-GFC leveraged transactional model that ripped fees from each stage of the investment lifecycle. MQG is the largest infrastructure fund manager in the world with huge leverage to the infrastructure megatrend that we’re clearly seeing globally. Importantly, the proportion of transactional based earnings is down – and the proportion of re-occurring revenue is up making future earnings more predictable – similar trend playing out in the broking game which creates some short term pain but the model is better for all…We like MQG, we were too fussy on our entry around ~$92 in the last pullback and didn’t get set which is frustrating but life! What’s even more impressive is MQG has taken out the $100 market even in the face of $US weakness. Stock up +0.87% today to $100.20

Macquarie Daily Chart

Macquarie Monthly Chart

3. BT Investment (BTT) – scorched higher this morning after a positive note out from Bells,….which sent the stock up +4.53% to $10.85. We’ve been in and out of BTT (out now) and the trends are too 50/50 for us at this stage, however improvement in Europe clearly helping. Bells the most bullish house on BTT by a big lick, however consensus price target at $11.91 – pricing about +10% upside from current prices.

BT Daily Chart

4. Downer (DOW) - popped 5.1% today after the contractor increased NPAT guidance to $195mil, a +3% increase - the uplift mostly stems from the costs savings brought in through the $1.2bil acquisition of Spotless group that was completed in August. Spotless’ (SPO) earnings should hit the lower end of guidance at $85mil, impacted by an underperforming contract at the Royal Adelaide Hospital, however the acquisition hasn’t thrown up any other curlies at this stage which is good – the mkt probably factored in a few given the composition of the SPO low margin business. DOW closed at $7.07, the next target is the key resistance level of $7.20, and a break above should lead to fresh new highs of $7.50+.

Downer Daily Chart

4. House pricesare a national past time in Australia and a BIG risk to the banks apparently , however a good chart outrecentlylooking at the amount of money they have lost in home loans versus business/personal lending. While it makes for interesting discussion, as you can see below, home loan losses don’t change much, spikes in bad debts have been due to business defaulting. So with low rates and under geared balance sheets across corporate Australia, there is little signs of stress.

OUR CALLS

No movements across our portfolios today…although Nanosonics is back on our SELL radar after closing today at 259/260 – right on our key level of support. We’ll make a call on this tomorrow. Assuming we cut it, it will be just the second losing trade in the last 15 closed positions. Not a bad run.

Have a great night

The Market Matters Team

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