The ASX200 powered to fresh all-time highs yesterday even while China regulators hammered certain pockets of the market and the COVID numbers out of Sydney continue to worsen by the day. Overnight the Australian Financial Review (AFR) was flagging another month of lockdown for Sydney but equities are just shrugging off the speculation as old news. More stocks actually fell on Tuesday but when heavyweights Commonwealth Bank (CBA) and BHP Group (BHP) rally strongly the bears are unlikely to be dancing in the street. Two clear trends unfolded across the market with the first one having been flagged by MM over recent weeks:
- Investors are rotating into banks and resources (value stocks) and out of interest sensitive stocks such as Healthcare & Tech (growth stocks).
- Any stocks with potential exposure to Chinese regulation are being unceremoniously dumped as investors flock to safety in fear of further crackdowns by a Communist Party who clearly have little regard for stocks – no election to win for them!
For now the easy part of investing locally is to simply stay long equities but which stocks & sectors is far more testing as aggressive rotation continues to wash through stock markets, 3 important points in my mind at present:
- MM remains bullish the ASX200 into Christmas with a “best guess” upside target ~7700 i.e. extrapolated from our BHP Group (BHP) and Commonwealth Bank (CBA) upside targets.
- We believe bond yields have either found a decent low, or are very close to it, implying the rotation from growth to value has much further to unfold.
- Investors need to be prepared to take profits in today’s fickle environment which is seeing major swings under the hood as all investors scramble to add value / alpha.
The last point above is directed very much at ourselves, the positions which are currently giving me the most angst across some of our portfolios reached our initial upside target area before retreating aggressively, obviously this will never always be the case but it’s definitely worth bearing in mind i.e. the “trends your friend” and today that’s more about active rotation as opposed to purely north, or south.
MM remains bullish the ASX and keen buyers of pullbacks
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Overnight saw US stocks close lower for the first time in 5-days with the likes of Apple (AAPL US) and Microsoft (MSFT US) retreating ahead of their earnings plus the mess unfolding in Chinese Tech is probably dampening sentiment towards the sector. Locally the SPI futures are calling the ASX200 to open down around 25-points not helped by BHP Group (BHP) slipping -0.6% in the US.
