Archives: Reports
Crude oil has been supported by major geo-political events since COVID, but it’s not delivered an overly exciting performance from the ASX oil & gas names – uranium has been the big winner in the Energy Sector. The supply and demand fundamentals continue to concern some analysts as record U.S. production combined with a weak Chinese economy creates risks of oversupply, potentially offsetting tensions in the Middle East and the Russia/Ukraine war. Brent crude is trading around its average level of the last five years, albeit with some volatile spikes in both directions.
A softer start to the week with the ASX dipping 0.4%, however, it was very stock specific with CSL down ~5% which accounted for 21pts of the ASX 200’s 30pt loss, while Materials & Energy were also on the nose.
We are amending the International Equities Portfolio
Lithium has been dominating the news around the demise of the ESG Sector for months, but nickel has come to the fore of late as the collapse in the commodities price has led to the closure of mines operated by IGO and Twiggy Forrest’s Wyloo. Now heavyweight BHP Group (BHP) is feeling the pinch with estimates that its Nickel West business is losing $50m a month. The government has even been involved as it aims for a carbon-zero economy by 2030, a big ask if Australian businesses are losing millions in the pursuit of their optimistic goal.
The ASX200 ended a choppy week slightly lower, snapping a two-week winning streak even after three consecutive days of gains from Wednesday. The -0.7% dip over the five days was primarily caused by weakness in the Resources Sector, plus some disappointment after the RBA retained its tightening bias on Tuesday.
Not a lot to invigorate markets today as the index chopped in and out of positive territory. The Uranium stocks saw the most activity following Cameco’s (CCJ US) quarterly result overnight, a topic we’ll cover below. Elsewhere, IT was as strong as Energy was weak and on a market that did little, it was not surprising that winners and losers were split evenly.
The Australian Healthcare Sector has surged ~30% since late October, and although we are bullish over the coming years, a period of consolidation is overdue, and an 8-10% pullback wouldn’t surprise – at current levels, we aren’t looking to increase our exposure to the sector, pretty much in line with our view on the market in general. The sector has shown a strong inverse correlation to bond yields over the years, falling sharply when bonds rally/yields fall and vice versa. MM’s macro outlook is yields will fall through 2024/5 but not as fast as many hope, and the futures are pricing, another reason why we can see a pullback following the recent strong advance.
Another small gain for the market today took the ASX200 to around 1% below the all-time highs set last week. The banks did the heavy lifting, the Big 4 accounting for around half of the gain by the index, joined by strength in Tech, Utilities and Real Estate.
Reporting season throws up increased volatility on the stock level, illustrated perfectly by the +20% surge higher by Facebook parent Meta Platforms (META US) last week. However, when the market is positioned very bearishly towards a stock, and it beats or isn’t too bad, the move can be exaggerated on the upside as shorts look to buy back stock &/or fund managers attempt to get some exposure before it gets away from them. While shorting can get a lot of headlines, it is difficult to consistently get right and big losses from shorts are common place. When short a stock and it rallies, the problem gets bigger/worse, unlike a bought stock that goes down, the problem gets less influential on returns. Buying heavily shorted stocks can at times yield strong, quick gains.
With the RBA call now out of the way, the market focused on stimulus in China and some better-than-expected earnings reports, lifting the index after two weak sessions. Beaten-down resources stocks bounced aggressively, but Utilities & Real Estate was the winner today. Some M&A news caused Energy to underperform, while the consumer-facing sectors also lagged.
