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For more than a decade, Australian fund managers have leapt from one calamity to the next, creating an absolute minefield for Australian investors. A quick look at the charts of Janus Henderson (JHG), Platinum (PTM), and AMP (AMP) tells a clear, painful tale of wealth destruction. Now Perpetual (PPT) has joined the fray, with its share price basically halving over the last few years against a backdrop of a broader market making new all-time highs.
The market was strongest early before tapering off throughout the day, a late spurt putting the ASX200 in the green (just) on a day dominated by company-specific news flow, generally coming out of the very popular Macquarie conference.
Earnings undoubtedly drive share prices over the medium/long term, but when it comes to sharp short-term swings in overall market valuations/sentiment, there’s nothing like monetary policy to dictate terms for stocks, with the RBA front and centre yesterday. The correlation between the local index and 3-year bonds has been extremely close over the last year, which is the major reason MM keeps a close eye on credit markets. The RBA left interest rates unchanged on Wednesday at 4.35%, while they indicated rates would need to “stay higher for longer” to rein in sticky inflation; importantly, there was little suggestion that rates would again start to rise as many had feared. The main pressure on inflation is coming from the strong jobs market, as well as higher petrol prices, which has a knock-on effect throughout the economy – the latter is frustrating when we consider crude oil has fallen 5% in 2024.
The local market enjoyed the best session in 3 months today with a broad-based rally for much of the day turning into overdrive following a more ‘dovish’ than expected RBA which had interest rates on hold this afternoon. The gain of more than 100 points is even more impressive given NAB went ex-dividend today, the bank falling 52c vs 84c dividend, managing to hold onto more than just the attached franking credits.
We are making several changes to the Income Portfolio Today
A surging copper price and the market belief that the industrial metal will be in short supply in the years ahead as we move towards a carbon-neutral world were the catalysts for BHP’s purchase of OZ Minerals (OZL) last year and bid for Anglo-American (AAL LN) last month. In our opinion, there’s plenty more corporate activity likely in the copper space over the coming years, with the industrial metal remaining a core bullish view for MM. As we’ve said from the start, we would find it highly unlikely that BHP would approach this transaction with a one and done mentality and a second or even third bid would be likely. The AFR is running with a story this morning that both Argo Investments and Wilson Asset Management have said they are satisfied that value would be created by combining BHP and Anglo American’s copper and coal assets, this sort of PR can often be used as a way of preparing or softening the market for when the higher bid does come, which we think is inevitable.
A strong start to the 2nd week of May as softer US employment data on Friday allayed some concerns around sticky inflation and higher interest rates. As bond yields pulled back, equities got some clear air to rally buoyed by US quarterly earnings that are coming in stronger than expected. i.e. the Goldilocks scenario remains in play.
Following recent robust economic data and apparent evidence inflation is becoming increasingly sticky after its steep decline from around 8% in late 2022 to 3.6% today, analysts are split on the future path for interest rates through 2024/5. Most pundits are looking for no change after Tuesday’s 2-day meeting, but the futures market is pricing a good chance of a hike by September – we believe the RBA will adopt a patient stance, but we acknowledge there is far more chance of a hike than a cut over the coming months.
The ASX200 edged +0.7% higher last week as easing bond concerns saw the rate-sensitive stocks/sectors recover strongly. However, some of April’s best-performing areas of the market encountered some profit-taking. For example, the Real Estate +3.2%, Tech +2.3%, and Consumer Discretionary +2.1% sectors advanced strongly, whereas the Materials Sector slipped -0.3%
A solid session to end a choppy but overall positive week for stocks with some big moves playing out across the market. The rate-sensitive sectors in Real-Estate & Property were the main winners for the week showing strong reversion from last week’s move. This ongoing uncertainty around interest rates is clearly having a big influence, however, if MM is correct, the next move in rates will be down which will be supportive of equities overall, hence we’ve maintained our bullish bias towards stocks.
