Australian Investment Blog

Good Afternoon everyone

What Mattered Today

A weak open with the index trading just above the 5400 support level we’d flagged in today’s Morning Report before some buying ticked into the screens around 10.15am - the market rallied from then on. Our view is the ASX200 will spend a few days consolidating its recent gains around / above the pivotal 5400 area prior to continuing with its current advance.

We had a range of +/- 29 points, a high of 5436, a low of 5407 and a close of 5431, which was a flat result overall. Volume was about 30% below the 20-day average which is unsurprising really given public school holidays kicked off today.

ASX 200 Intra-Day Chart

ASX 200 Daily chart

Although the index was flat, there was a fair amount of movement below the surface. We were active in Rio Tinto (RIO) today taking a bullish options trade while we also took a position in Mantra (MTR). RIO closed up +0.62% to $50.38 while Mantra (MTR) added +1.24% to close at $3.27.

Rio Tinto (RIO) Daily Chart

Mantra (MTR) Daily Chart

Banks were fairly flat today however a number of interesting points worth making here that are supportive of our current overweight positioning in the sector;

1. $7.5b of dividends paid out to investors this week with some of it likely to find its way back into the mkt at a time when volume is below the norm – which means we see stocks go up more than they normally would.

2. Statistically, October is an excellent month for our banking sector. For example, the worst performance over the last 5-years from CBA, our largest bank / stock was +3.4%.

3. In terms of CBA, we saw the Head of Investor Relations today and there were some very interesting takeaways particularly around capital which has been one of the big impediments to bank share prices in recent times. It seems the global view is moving towards; there is no Basel IV, will be minor changes to Basel III, there will be no further overall increase in capital requirements. The latest comments from APRA (30th August) “the steady accumulation of capital remains a sensible course for most ADIs”.

4. Supporting this call was Mark Carney, the Governor of the Bank of England saying “In short, there will be no Basel IV.”

5. Andreas Dombret said the Bundesbank, where he’s in charge of financial supervision, had considered the industry’s arguments and concluded that “there is a need to recalibrate” the Basel proposals.

…and there’s a number of other heads that are making similar calls around bank capital requirements and associated regulation. To give some context here, one can look at ANZ Bank (ANZ) following their last market update. Their capital was in much better shape that had been feared by the market and realisation of that fact prompted shares to rally +26%. Further capital raisings are being factored in by the market. If that does not happen – and we don’t think it will - bank share prices should rally from here.

Another interesting discussion in the AFR today with Shane Finemore – an Aussie trader from Wagga Wagga now based in London running a very successful $2.43bn hedge fund. A lot of readers may not have heard of him – he tends to like a low profile however he was ex-UBS before setting up his own shop backed by a number of well-known Aussie Families. He’s done very well and the interview covers some of the topics we’ve written about / and positioned our own portfolio towards.

"If you're investing in today's world where assets are trading at high prices, you have to find things that are unpopular to have any chance of getting value."

Finemore says the banks "have to be winners over time from higher rates, subject to economies not going into recession or having a big increase in credit costs"..

"We are also looking for assets that can give us an acceptable return when rates start to go up. The best banks in the bigger economies are well positioned for that." (Source AFR.com)

He also has a position in Origin Energy (ORG)!!

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ASX 200 Movers

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What Matters Overseas

FUTURES weaker….



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