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Australian Investment Blog

Afternoon Report 18/05/2016

Market Matters Afternoon Report Wednesday 18th May 2016

Good Afternoon everyone

Market Data

What Mattered Today

5400 continues to provide some resistance for Aussie stocks, with a weak wage number and greater chance for another interest rate cut not enough to keep buyers on the front foot. The ASX was off -39 points although there was decent individual stock moves.

Graincorp (GNC) $8.73 was up +7.5% on very good volume which spikes our interest….clearly one to watch given its history of takeovers….

Metcash (MTS) $1.925 a stock we’ve spoken of recently given it was trading near resistance and remains the No 1 short sold stock on the market – rallied +4.1% and punched through an obvious resistance level today which could prompt further buying / short covering. Look for a meaningful uptick in volume to confirm it.

Metcash – 16% of issued stock sold short.

On the flip side, Bellamy’s (BAL) $10.75 was off 5.54% today on continued concern around Chinese regulation despite reiterating their FY16 earnings guidance. Clearly, the longer the term picture seems sound with this company however there are short term headwinds / risk that could see the stock drop further in the short term. We sold yesterday.

Seek (SEK) $16.04 has a 5% weighting in the portfolio – which is reasonably small and allows us to give this trade a wider birth. We’ll provide a clearer update in tomorrow mornings note and set out the levels we are watching…

Westpac (WBC) is the latest bank to raise capital through the listed Hybrid market with a new offering just released. Indications are that early demand has been strong which is unsurprising really given the decent margin over the bank bill rate (4.90% to 5.10%) and the strong performance of the recently listed CBAPE which is now trading around $103.20.

The Westpac issue will be priced between 4.90% & 5.10% over the 90 day bank bill rate which equates to a grossed yield of 6.88% to 7.08% which is a little less than the 5.20% margin that the CBA garnered. Bond markets were very volatile when the CBA issue was priced hence the wide margin – however, on current market prices CBA is trading on a margin around 4.74% v the likely 4.90% margin for the WBCPG

Even at the lower end of the band, it remains fairly attractive versus current issues. As is the case with markets, we often see extremes. When demand was very high for these instruments, CBA priced their CBAPD at 2.80% over – now they’re paying 5.2% over – which we anticipate will be an extreme on the alternate spectrum.

This issue will be the highest margin Westpac have ever paid for a tier 1 issuance. For those looking for stable income, this note looks reasonable.

Stocks & Sectors Today
Source; Bloomberg

ASX 200 Movers

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The Market Matters Team
Level 12 28-34 O'Connell St
Sydney, NSW 2000.

All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 18/05/2016. 5:15PM.

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