Australian Investment Blog

Good Afternoon everyone

What Mattered Today

A good session for the broader market today following the Bank of Japan’s (BOJ) decision to ‘tweak’ it’s current stimulus package. All up, the package has a number of twists and turns but overall the market seemed reasonably happy with the plan put forward by the central bank.

Interest rates on deposits stayed stable at -0.10% which was expected, and they got rid of the 7-12 year JBG buying duration. They’ll introduce QQE with yield curve control and they kept their ETF purchases at JPY 5.7tn. Importantly, they said they’ll continue to expand monetary base until inflation is stable above 2% - which is an optimistic call but one that suggests they’ll be active in the markets for a while yet. All up, today's move is supportive of stocks and we saw that flow through here and in Asia.

Japanese Nikkei Daily Chart

Banks were up again today given they benefit from a steepening of the yield curve. We’ve spoken about this theme in a number of reports recently, and in simple terms, when the gap between the yields on short-term bonds and long-term bonds increase, it makes the yield curve steeper.

Banks borrow short and lend long, which means they benefit as the gap between short and long term rates widen. If I can borrow at 1.2% and lend at 2% I make 0.80%. If the short end moves up to 1.25% but the long end goes to 2.10%, the margin becomes 0.85% - an improvement in margin which is supportive of earnings. ANZ and NAB were the best performers today adding +1.68% and +1.33% respectively.

On the market today we opened fairly flat before pushing up for much of the session. We had a range of +/- 42 points, a high of 5345 a low of 5303 and a close of 5339, up +36 points or +0.68%

ASX 200 Intra-Day Chart

ASX 200 daily chart

Another day and more pain in the telco space – this time it was Vocus (VOC) that headlined following the resignation of their CFO while TPG Telecom (TPM) – which was whacked 21% yesterday fell another -7% today. Both were on BIG volume today with VOC doing more than 21m shares v an average day around 5m shares.

Vocus Communications (VOC) Daily Chart

Clearly, todays resignation by Rick Correl – who was on the Vocus side of the merger (with MTU) rattled the market and seemed to be the straw that broke the camels back.

It’s never good when we see an abrupt move like this that blindsides the market, particularly a market that’s reeling from yesterday’s TPM downgrade. We’ve also had news in recent times that James Spenceley – founder of VOC sold down 3.2m shares which tends to erode confidence. In June the company raised $652m at $7.55 a share to acquire the NextGen assets – and the raising was oversubscribed. Today you could have had all the shares you wanted below $6.00.

Interesting to see one analyst downgrade today following the resignation claiming that something must be going in the ranks of VOC management. It’s hard to make that judgement and to downgrade post such a big drop – surely the horse has bolted! The Q becomes, what to do with VOC given we own it?

We continue to hold it and today's drop looks like that capitulation style event – where all the weak longs fall on their sword. As we wrote earlier – the straw that breaks the camels back has prompted a -10% drop in the stock today – yet the resignation of the CFO alone would not normally do that. Clearly, the market smells a rat and is wanting out. If we didn’t own it, we’d buy it. Unfortunately, we don’t have that luxury at this point in time.

Elsewhere, Nufarm (NUF) reported today and the numbers were ahead of the street – $286m earnings v $255m expected. The stock has been in a rut for the past 12 months trading within a $6.40/$8.80 range. Today it broke that range. We like the sector although think NUF has some headwinds from weaker crop prices offset to a large degree by a good cost out program.

Nufarm (NUF) Daily Chart

Sectors



ASX 200 Movers



Select Economic Data - Stuff that really Matters in Green



What Matters Overseas

FUTURES higher overseas leading into the 2nd day of the FOMC meeting.



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