Equity Indices

The ASX200 ended last week down another -2.6% taking August’s pullback to -3.5% with nine trading days remaining. Risk sentiment has been significantly dampened by an ever-hawkish Fed and a Chinese economy that is struggling to regain its “mojo” post the country’s severe zero-COVID policy – strict lockdowns have exacerbated issues in the likes of property that were already surfacing in China. Last week we saw the PBOC cut rates for the second time since June as Beijing starts to combat the country’s economic woes, we believe they will pull more targeted levers than just monetary policy as they look to create “quality growth” but it may take time before the market becomes convinced that the dial is turning.

Firstly, we ultimately believe that Xi Jinping et al will be successful which will provide an excellent backdrop for local China-facing companies and in particular the Resources Sector. Secondly, our current view is the Fed is being prudent in not dismissing inflation but again things are trending in the correct direction and we would be surprised to see the Fed hike more than once at most over the next 6 months. While we wouldn’t be surprised to see the ASX200 retest its 7000 support area we currently see no reason to move significantly underweight equities at this stage of the cycle – note our Flagship Growth portfolio is currently holding a relatively conservative 8% cash position.

Local Reporting Season is again likely to dominate any moves under the hood this week with Audinate (AD8), APA Group (APA), BHP Group (BHP), SRG Global (SRG), Woodside (WDS) and Regal Partners (RPL) all stepping up to the plate in the next 2 days.

• The SPI Futures are calling for the ASX200 to open down another -0.3% on Monday with BHP slipping -15c in the US not helping the bullish cause.

US indices extended their August pullback last week but noticeably after pulling back -8.6% the tech based NASDAQ found some buying on Friday to close near its highs, down only -0.14%. Over the same 5 weeks the NYSE FAANG+ index has corrected -13.5% suggesting we’ve witnessed a lot of profit taking as uncertainties grew around China and interest rates. In todays “Chart of the Week” we will be looking at bonds and investors’ appetite for the looming significant issuance, if they hold up well it could easily provide the catalyst for buyers to return, along with NVIDIA’s result this week.

• We are now bullish towards equities both short & medium term after indices have followed our road map through July/August.

The Hang Seng has corrected -21% from its January high as economic indicators continue to suggest that Beijing is failing to lift the Chinese economy out of the doldrums. It’s a simple scenario in our opinion, if/when Xi Jinping’s & the PBOC’s actions start to gain traction we believe the Hang Seng will break above 22,000 but until then it’s a big ask to see a rally on pure optimism alone.

• We like the risk/reward toward the Hang Seng into current weakness.