Australian Investment Blog

Good Afternoon everyone

What Mattered Today

A good day for local stocks with the resources copping most support. We had a range of +/- 44 points, a high of 5391 a low of 5347 and a close of 5391, up +34 points or +0.65%

ASX 200 Intra-Day Chart

ASX 200 daily chart

What we liked the look of today.....??? A couple of the stocks we follow closely had a very good session today after a few hard weeks, it’s nice to see. Obviously, we’ve seen some more optimism coming into the market post the BOJ and FOMC meetings with both showing commitment to further stimulus. Janet Yellen of the Fed would clearly be happy with the market’s reaction to her justification for leaving rates on hold, with the probability of December hike now sitting at 61% - which is up from 55% before the meeting, the $US actually rallied, the US stock market rallied as did bonds putting pressure on yields. She pretty much got everything on her wish list. The key – as we’ve written about recently is around where Fed members see rates in December 16. Each dot represents a voting member of the Fed. Clearly, the consensus sits at 0.75% which means we’ll be getting a December hike.

Independence Group (IGO) +7.2% – We own it and it started to perform today adding +7.2% to close at $4.17 supported by a strong gold price. This is a very volatile stock and has struggled with back to back rallies. One to watch tomorrow, however, it’s a good company in the right space.

Independence Group (IGO) Daily Chart

BHP (BHP) +2.7% – Both BHP and RIO (+3.25%) had very good days today in what looked like some pent up buying. A lot in the mkt were talking about the Fed decision, which could bring forward expectations for a December interest rate hike and in theory that could push the $US higher and commodities lower. It’s a pretty logical assumption to make and would have kept some on the sidelines till after the decision.

BHP (BHP) Daily Chart

Rio Tinto (RIO) Daily Chart

Aconex (ACX) +7.47% - It provides a cloud-based solution to manage information and processes across projects in construction, infrastructure, energy, and resources. They’re global, have big name customers and a great product that is highly valued by those that use it. Since listing in 2014, Aconex has gone from around $1.70 to a high of $8.75. It now trades at $6.60 and looks interesting...

Aconex (ACX) Daily Chart

Cynata (CYP) +15% - we wrote about this smaller spec a few weeks ago – CLICK HERE to read – and it’s done well. Biotechs tend to be somewhat binary particularly when they’re entering a trial – which is the case with CYP.

Cynata (CYP) Daily Chart



….& finally, this week we had Sydney Airports (SYD) release another bumper set of traffic numbers which got us thinking about Travel stocks. Inbound tourism is accelerating and it’s an investment theme worth having some exposure to.

The Airport is processing more international tourists than ever before with growth over the past 12 months of around 9.5%. A number of factors combine to support this flow, however, the main two clearly revolve around the rise of the Chinese middle class and the fall in the Australian Dollar.

In terms of the Chinese middle class, the changes to global consumption including overseas travel will be huge as the middle class grows. Right now, only about 4% of the almost 1.4billion people in China hold a passport, compared to 35% of Americans — but that 4% spends almost $200 billion overseas annually, more than any other nation, according to Goldman Sachs. China's urban middle class dominates tourism spending, and Goldman Sachs reckon that 12% of the population will hold a passport within a decade.

In terms of the Australian dollar, at time of writing the AUD/USD is trading around 76c however with an interest rate increase in the US on the horizon, it’s easy to see the Aussie dollar dip sub 70c at some stage this year , which would prompt renewed interest in sectors that are leveraged to a lower currency – travel stocks clearly fit this bill.

Sydney Airports (SYD) has been the go-to travel stock in recent years and rightly so – it’s a great business with sensational long life assets and high levels of free cash flow, however, the backdrop of rising interest rates globally means we’re looking elsewhere for our travel exposures.

Here’s a list showing the main travel companies listed on the ASX, including their 1 year forward PE, earnings per share growth profile and consensus price target according to Bloomberg. A couple of these stocks look appealing and we’re contemplating adding one to the portfolio…

ASX listed Travel Stocks

Sectors

ASX 200 Movers

Select Economic Data - Stuff that really Matters in Green

What Matters Overseas

FUTURES are fairly muted this evening…



Overnight, the Fed left interest rates unchanged as expected by both ourselves and the market. However, the Fed appears to be revving the engines for the future with 14 of 17 board members targeting an increase in 2016 i.e. The December hike that we targeted yesterday. Importantly the Chair, Janet Yellen, suggested the lack of hike was not due to a lack of confidence in the economy, they are closely monitoring financial developments and asset valuations are not out of line with historical valuations.

Our major interpretation from this morning is from the rhetoric – recall the phrase "Don't fight the Fed", if the Fed are saying asset prices are ok strongly implies they do not want the stock market falling from current levels. The USS&P500 is only 1.4% below its all-time high and our 2400 target area remains intact.



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