Equity Indices

The ASX200 fell away in the last full week of May making fresh 8-week lows in the process, the influential banks and resources weighed heavily on the local market. However, the moves & news of the last few days could easily see the market punch to fresh monthly highs this morning as the index rotation in the 7000-7500 area continues.

• No change, we believe this year will be about “buy weakness and sell strength” while stock & sector rotation will continue to provide plenty of excellent opportunities under the hood – so far in 2023 tech has been the standout performer.

Following Friday’s strong session on Wall Street the SPI Futures were calling the ASX200 to open around 7225 but after the US debt resolution optimism and short covering might be unleashed on the many bears– we believe the market will open up around 100-points before we start trying to 2^nd guess how the news will be received by European and US bourses i.e. we cannot discount a classic case of “buy on rumour sell on fact” remembering bonds didn’t believe a default was ever really on the table.

• Wall Street is closed tonight for Memorial Day leaving the local market guessing for clear direction as we head into June.

The Russell 3000 index is broad based and not as heavily influenced by the large tech stocks such as the well-known S&P500 and NASDAQ. We expect this index to punch clear above the 2400 resistance area early this week but if it fails and reverses back down below 2350 we will adopt a neutral to negative stance i.e. we’re not keen on markets that cannot rally on good news.

• Our preferred scenario is the Russell 3000 follows the Tech-based NASDAQ to fresh 8 months highs in the coming days/weeks but we wouldn’t chase the move if it does unfold.

Chinese equities have struggled since early February but we believe they will benefit from an improving outlook for their exports and the nation’s manufacturing industry plus the PBOC looks close to stimulating their economy which is struggling to regain traction post-COVID.

• We like the risk/reward towards Chinese stocks after their recent 10% pullback although there are no signs of a reversal yet – if we are correct this is likely to eventually be a good read-through for resource stocks.