Australian Investment Blog

Mattered Today

Another session of weakness for stocks and once again, the majority of the selling was focussed on the Aussie market. A few key points from the outset to help explain our thoughts on the current flow of the market.

5350 was our tipping point to go from bullish to neutral / bearish. We traded through that level today and closed below it so our stance becomes more defensive. For that reason, we took profits on ANZ today which accounted for 10% of our portfolio and allocated 5% into a more defensive holding. This boosted our cash levels, reduced our exposure to the banks as we’d been writing about over the past few weeks, and gives us some more ammunition to buy any further weakness that may prevail. Having flexibility in a market like this is key, and the moves we took today increases our flexibility. We have another stock on the radar that we may sell tomorrow to further increase cash.

ANZ Bank (ANZ) Daily Chart

In terms of the market performance, the ASX seems to have been targeted specifically from futures-led selling. This a theme we’ve written about on a few occasions, however, it’s relevant, and worthwhile explaining today. Big funds, professional investors, money managers etc – trade futures contracts to hedge risk, or take a directional view on a particular market. The selling today, and yesterday for that matter seemed to be futures led. If someone big is taking a negative stance on Australia, they can sell the SPI, which is a future contract over the top 200 stocks on the market. If that happens, a hedge needs to be put in place by those on the other side of the trade. A hedge would include selling the underlying stocks to offset the risk, and therefore we get a situation where the futures market can put a lot of pressure on the stock market. From then on, momentum builds and the selling becomes self-perpetuating.

The range today was another big one printing +/- 79 points, a high of 5374, a low of 5295 and a close of 5295, off -64pts or -1.20%. Another big volume day as well with more than $6.5bn going through the bourse… We tried to bounce on a few occasions – but got clobbered every time we did eventually closing on the lows.

ASX 200 Intra-Day Chart

ASX 200 daily

Nab reported this morning and the report was OK. You could argue quality was low given lower bad debts and margins were weak, however, capital position was very good which has been one of the key elements focussed on by the market. The dividend stayed firm at 99c which was pleasing, however, the payout ratio at 88% is clearly unsustainable – and will need addressing at some point soon. We’ve got a presentation with the CFO next week so we’ll write more about it then.

Worth also noting though that when ANZ reported a few months ago, a better capital number spurred some very strong buying in the stock. Given the market is still factoring in future capital raisings, and today's report probably casts more doubt on that, the banks should be reasonably well supported – in a relative sense that is. We still think it makes sense to trim holdings into a weak period (November the weakest month for the banks all year) and re-visit the sector closer to Christmas.

NAB (NAB) Daily Chart

Elsewhere, we had Wesfarmers continue to sell off following weak sales numbers yesterday – and it’s just another example of the market taking the boot to anything that has the slightest stench to it…

Wesfarmers (WES) Daily Chart

…And finally, Macquarie Reports tomorrow – here’s the view of Shaw & Partners

On 19th September MQG said expect 1H17 to be around 2H16 or $993m. We have weaker revenue growth than the market but lower costs.

• Key Focus: We are expecting solid 1H17 result with no surprises, NPAT of $993m, EPS $2.89 and a first-half dividend of $1.60.
• 2017 Guidance: MQG is guiding to flat profits in FY17. We take this to mean around $993m in 1H17, in line with 2H16.
• Flat Profits: MQG are saying performance fees of FY16 will be difficult to repeat (FY16 $717m we assume $333 in FY17); securities will be down, but rest of business is growing. Offset to lower performance fees will be lower impairments; Commodities and Financial markets business stable.
• Annuity Style Businesses continuing to perform well (~70%) – Asset Management business benefiting from higher base fees, CAF (Esanda and AWAS) integrations going well.
• Market Facing Businesses mixed (~30%) – FICC business benefiting from better trading conditions but expect Macquarie Capital to be more subdued.

Macquarie (MQG) Daily Chart

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