Archives: Reports
Overnight, the AFR led with the story that Singtel was in advanced discussions to sell Optus, Australia’s second-largest telecommunications group, to Toronto-headquartered private equity giant Brookfield, a major deal worth around $16-18 billion. Singtel have denied the rumours, but often where this is smoke there is a fire. After over two decades of ownership, Singtel will pass the reins over to private equity, which will have to deal with regulators for Australia’s second-largest telco. It will be interesting to see how Brookfield plans to turn around Optus after its recent outage and cyber-attack issues.
A choppy but mildly positive session with exactly half the stocks in the ASX 200 up, while half fell, the retailers attracted some buying into recent weakness while the material stocks remained on the nose despite a recent bounce in Chinese equities- BHP is back testing the bottom of its trading range ~$42.
For most local investors, the million-dollar question is what impact the ongoing Chinese stimulus will have on local stocks, particularly the Resources Sector. Our opinion is not a great deal if they fail to lift economic growth, but financial markets should enjoy a period of optimism at least once in 2024, which is likely to lift resources with a number having struggled through 2024, e.g. BHP Group (BHP) -15.1%, RIO Tinto -14.8%, Fortescue (FMG) -13.7%, and South32 (S32) -12.3%. Iron ore is the standout theme across the underperforming heavyweights, with the bulk commodity trading around a five-month low as steel mills cut production as construction continues to struggle.
A far more stable session today after yesterday’s fireworks, the local market looked to recoup some of the pain of Monday’s trade early on. The bounce didn’t last long though, up +32pts/+0.4% at its best early only on close just marginally higher – much of the headwind came from BHP which hit its lowest level since May last year.
From conversations we had yesterday, it was clear that one large down day was enough for investors to question the valuation of the local market around the 7700 level. Our answer has been consistent since the market spiked under 7000 in late 2023 – “don’t look at the index; focus on individual stocks and sectors” because overall selling across the market often provides excellent opportunities to accumulate quality stocks. We believe the macro backdrop will support equities through 2024 as we frequently hear and see, not all boats will float as one.
A few cracks appeared in equities today, the index giving back all of the gains banked from last week and peeling back from all-time highs. It was a broad sell-off for the market, with all sectors closing lower in the ASX200’s biggest drop since 10 March 2023, a year ago almost to the day.
Gold advanced again on Friday, taking it up +5.6% year-to-date and posting fresh all-time highs in the process. Increasing optimism that the Fed will start cutting rates in 2024 has been the backbone for advancing precious metals, but the early foundations were laid in China. The gold market turned higher three weeks ago, with the $US2,200 level now only one good day away. The move has danced to the same tune as most risk assets, from equities to crypto, with algorithmic momentum traders set to become increasingly interested as gold rallies on the upside. However, it’s been a tough journey for investors in gold stocks, who have largely struggled over the last year while the precious metal rotated around the $US2,000 area.
The ASX surged to fresh all-time highs on Friday, taking the index up +1.3% for the week and 3.4% for the year, a solid performance considering some of the big names trading ex-dividend last week. The Financial and Real Estate Sectors led the index higher while the Energy and Materials names both slipped ~0.7%; as we’ve said a number of times in 2024, the relative performance song remains the same. On the stock level, the banks led the line with heavyweight CBA making fresh all-time highs assisted by the tailwind of the takeover bid for VUK, while real estate and gold also enjoyed strong weeks:
Another new all-time high on a very bullish Friday, the ASX 200 trading above 7800 for the first time, as the banks continue to drive gains at the index level. CY24 to date, the ASX is now up 3.4% excluding dividends as the ‘Goldilocks’ scenario for stocks seems to be playing out.
At MM, we missed the rally in discretionary retailers, but what about now? Arguably the only thing worse than missing a strong move is being sucked into a FOMO trap and buying just before it pulls back. Ironically, several analysts have fallen on the sword only to see some decent corrections unfold over recent weeks, but as we saw last night, rates are set to fall, and the Consumer Discretionary Sector is highly correlated to bonds, i.e. if the sector remained strong with high rates, it’s not surprising to see it rally higher with markets looking for the Fed to start cutting in June. Some of the takeouts across the sector from the recent reporting season provide us with some clues as to what comes next.
