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Weakness across international equity markets bled into the ASX today with shares trading to a 4-week low. The US market struggled following better-than-expected retail sales prints leading to upwards pressure on rates. This compounded concerns around China’s property market and economic growth outlook which has weighed on equity markets across the region in recent weeks, yesterday’s rate cut from the PBOC only providing short-term relief. Reporting season is now well and truly in full swing while CBA went ex-div today adding to the red on the index.
The initial reaction to the stimulatory move by the PBOC was positive with resource stocks in particular reversing early losses e.g. BHP Group (BHP) rallied +50c from its lows but by the close it had surrendered half of the move to end down -0.3%. The move by the PBOC came in as China suspended reporting youth unemployment rates from August, that’s one way to hide souring numbers. In our opinion, the Politburo, China’s prime decision-making body, will need to pull more levels to turn around their juggernaut economy and consumer sentiment.
The vibe so far in reporting is a net positive one with more beats than misses, and more companies rallying post results despite some festering concern around what’s to come in FY24. That’s not to say everything is positive, but by-in-large, we’re doing okay and this was supportive of the ASX today which snapped a 2-day losing streak. Weaker data out of China continues to put pressure on the PBOC to stimulate, and while it remains largely elusive, the local resource stocks seemed to find some support from intra-day lows on optimism around such a move.
Beijing has undoubtedly got its work cut out, July’s CPI fell by -0.3% year on year while the PPI fell -4.4% over the same period, the 1st time both numbers have been negative since November 2020 when COVID was the only story in town hence the deflation concerns are real and well-founded and MM firmly believes Xi Jinping et al must step up. However, it’s not all bad news with Chinese household savings continuing to rise illustrating that a significant part of the issue is consumer confidence which can be reversed with the appropriate action.
The ASX was hit today, weighed by growing concerns around the Chinese property sector as another large developer teeters on default – while earnings continue to dominate news flow locally. As of Friday, around 20% of the market’s total capitalisation had reported results, so far, so good with earnings beats outnumbering earnings misses by a solid ratio of 3:1, although we have seen adjustments lower for FY24 on softer outlooks.
China’s economy has been misfiring post its extreme COVID-zero lockdown which both failed in its objective and set their economy back many, many years. Last week we saw Chinese banks extend the smallest amount of monthly loans in 14 years illustrating the deflationary pressures weighing on the world’s second-largest economy. The number of new loans announced by the PBOC came in less than half of that forecast by the economists covered by Bloomberg.
The ASX200 ended the week up just 0.2% with much of the action unfolding on the sector level as would be expected during reporting season. The Consumer Discretionary Sector was the best on the ground closing up almost +2% as the market became more optimistic towards the global economy – JP Morgan & Bank of America both scrapped their recession calls this week i.e., the “Goldilocks” scenario. It was a rare week for this year to see the Tech Sector as the market’s worst performer closing down -1.6% as investors started to reposition themselves for a brighter 2H. On the stock level, the big moves were dominated by reporting season plus a sprinkling of general news:
A tentative end to a week that had a bit of everything, from company results here and overseas, important economic data, RBA testimony to parliament, a loss by Manly at Brookvale to end their season & now the biggest event of the week, the Matilda’s playing France on Saturday afternoon!
We are making multiple changes to the Flagship Growth Portfolio.
We’ve edged into what we see as the ‘deep value’ space, already buying a few beaten up stocks in Elders (ELD), Lendlease (LLC) and Magellan (MGF), looking for turnarounds to unfold on the stock specific level – encouragingly all of these positions are showing a small paper profit with an average of +5.5%.
