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Last week, the AX200 edged up just +0.03%, but on the stock and sector level, it was anything but a quiet five days for local equities. The Materials Sector soared +9.4% while the financials fell 4.4% as major economic stimulus out of Beijing ignited optimism that the PBOC can reinvigorate the world’s 2nd largest economy; the banks, after their impressive gains through 2024, were used as a funding vehicle. Also, we shouldn’t forget the extreme market overcrowded positioning, which led to last week’s aggressive performance reversion plus, of course, Beijing’s new “whatever it takes” approach
An extraordinary week comes to an end with significant divergence playing out across the market, the Material sector was up over 9% against the Financials that were down ~4.5%. We often say the market can’t go up without the banks, and a flat week at the index level supports that call, but geez, with a move like we saw in resources it went close to blowing that claim out of the water.
The ASX200 surged +0.95% on Thursday, with broad-based buying propelling the local index back above the psychological 8200 level. Over 85% of stocks in the major index advanced, while 10 of the 11 sectors finished in the green, with the banks again the main drag from a points perspective.
It’s not often we see the ASX up ~1% yet the banks finish lower on the session, but that was the case today and it speaks to how aggressive the move back into resources has become in the last few sessions following the PBOC’s intervention, and it seems there is more to come if Chinese state owned media is correct.
What Matters Today: Three stocks we like when Australia follows the US & mortgage rates finally fall
The ASX200 slipped -0.2% on Wednesday while extending its recent stock/sector reversion. Commonwealth Bank (CBA) declined by -2.3% while BHP Group (BHP) added another +3.8%, one more similar day, and BHP will reclaim the top spot as ASX200’s largest company. The rotation back in miners following China’s mammoth stimulus saw iron ore rally back towards $US100/MT; remember, analysts are valuing the likes of BHP and RIO, with the bulk commodity closer to $US80/MT.
Weakness again at the index level largely due to bank selling, while the miners were top of the tree for a 2nd day running. Inflation is now back into the RBA’s 2-3% target, and while this was a monthly read only today, the trend is heading in the right direction having peaked at 8.4% in 2022. Inflation down, growth slowing, employment conditions softening, wage growth moderating, all point to lower interest rates, it’s just a matter of when.
On Tuesday, the ASX200 delivered a perfect example of how investing is far more about stock/sector performance than the underlying index, which attracts too much attention. So far, 2024 has been dominated by interest rate-sensitive stocks, with the Tech, Financials and Real Estate sectors all up over +20%. Conversely, the materials and energy names were down over 15% before yesterday’s dramatic reversion – one day doesn’t make a summer, but it did catch our attention
A mildly weaker day at the index level, though lots going on under the hood with a big rotation playing out causing a 6% price differential in the performance of CBA down -3% v BHP up +3% following a string of stimulus measures from Beijing.
The BofA’s September Fund Manager Survey (FMS) revealed a “big shift” from global cyclicals to bond sensitives. September saw a rotation into defensive sectors and out of cyclical sectors. Fund managers’ relative net overweight stance towards defensives (utilities and staples) versus cyclicals (energy, materials and industrials) is now the highest since May 2020. If/when China does regain investors’ confidence, the unwind is likely to be dramatic.
The ASX opened the week on the back foot giving back around 30% of last week’s gains, weighed by the retailers, supermarkets in particular as the ACCC sets their sights on misleading conduct.
