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The local Tech Sector is up +16.5% year to date, but it doesn’t feel like it when we enviously consider the surge back towards all-time highs by their US peers, local sentiment was not helped last week by sector heavyweight Xero (XRO) down -11%. We went overweight the local tech sector in anticipation of an aggressive rally into 2024 led by their US peers. We got a few pieces of the puzzle correct, but our Altium (ALU) and Xero (XRO) positions show a paper loss of ~1% – we hold these two stocks in our Active Growth Portfolio.
Last week was one to forget for MM with a few of our positions in our Active Growth Portfolio having a really tough time for a variety of reasons, e.g. Xero (XRO) -11.1%, Paladin Energy (PDN) -7%, and Whitehaven Coal (WHC) -3.8%. It felt like the only place that fared worse than us was the ESG names which continued their standout underperformance, e.g. Liontown Resources (LTR) -9.4%, IGO Ltd (IGO) -7.4% and Pilbara Minerals (PLS) -6.4% with all three of these making fresh 6-month lows, or worse – crowded trades often sound logical but a stock/market needs fresh buyers to push higher.
A week of consolidation at the index level comes to a close, and while the index was little changed (ASX -0.02%), a lot was happening under the hood with two banks reporting and several other stocks out with updates, by in large, we were on the wrong side of them headlined by Xero (XRO) which we hold in our large cap growth strategy – more on this below.
After dancing to the same tune as its US peers since COVID, Australian tech has struggled the deeper we’ve moved into 2023 – no, NVIDIA doesn’t help! At MM, we remain bullish toward the US tech names looking for fresh 2023 highs into Christmas. Still, as we saw after Xero’s (XRO) plunge on Thursday, the local market is likely to be determined on more of a case-by-case basis, especially if the Fed keep pouring cold water on the prospect that the rate hiking cycle is behind us.
The ASX200 hit a 3-week high around midday today on hopes that we have seen “peak rates” locally and in the US. The run home was a little tougher this afternoon though, finishing in positive territory but falling ~30pts from the high. The Energy sector continues to struggle, Crude oil hitting a 3-month low overnight feeding into further weakness today, offset by a reasonable performance by Financials and Materials.
For more than 18 months the RBA have been hiking interest rates at an unprecedented rate to rein in inflation, after it surged higher following the huge amounts of economic stimulus which washed through global economies through COVID. However, at MM, we believe this journey has reached its conclusion and economic contraction in 2024 will eventually necessitate rate cuts, it feels like ages since those were considered. Hence, stocks/sectors that underperformed over recent years should be well-positioned to address this relative performance gap into 2024.
A mildly positive session for the ASX with 65% of the main board higher, if it hadn’t been for widespread weakness across commodities the market would have pushed up through 7000 with a bullish vibe, only 24 hours after the RBA hiked rates again.
As most people know, Michele Bullock and the RBA ignored MM’s advice and hiked rates another 0.25% on Melbourne Cup Day. It feels like a long time, but it was just 20 months ago that the Australian Cash rate was comfortably idling at 0.1% before the RBA disregarded the early telltale signs that inflation was rising, allowing the inflation genie to escape from the proverbial lamp. We believe yesterday was a similar case in point but in reverse with the Australian economy already starting to slow, but borrowers still coped a hike when a no change would have been prudent; time will tell if we’re correct.
The RBA raised rates today by 0.25% to 4.35% inline with the majority of expectations and market pricing – we’re not surprised they did but we thought there was very little reason to do so. The reaction in markets told the story, stocks initially lower but reversed quickly to trade up (+20pts) from pre-announcement levels, while the currency fell (-0.80%) and so did bond yields, the reaction you’d expect at the end of a hiking campaign
The ASX Healthcare sector has been the main underperformer through 2023, falling over -10%, while the Tech Sector has advanced closer to +20%. There have been some standout laggards in this much-loved sector, with Healius (HLS) and PolyNovo (PNV) down over -30% year-to-date, while only Cochlear and Pro Medicus (PME) have managed to post gains coming into November. Contrarian investors such as Chris Kourtis at Ellerston Capital have started buying names in the battered sector, including ResMed (RMD) and CSL Ltd (CSL) – they certainly look cheap on a historical basis.
