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We are adding to our existing position in FSLR
We are selling one underperformer to buy a high quality technology stock.
Last time MM went bargain hunting in the underperformers via Lend Lease (LLC), Magellan (MFG) and Elders (ELD), things didn’t turn out too well. We subsequently closed ELD for a loss (-9%) while we hold LLC (down -11%) & MFG (up +6.7%). Today, we’ve looked at things slightly differently, as discussed at length, bond yields have controlled equities through 2023, with the lack of traction by the small caps illustrating the point perfectly, i.e. small companies often need to borrow to fund growth, and with these costs rising plus the additional premium usually allocated to smaller companies borrowing it’s been hard work for the space to embrace the recovery in say the cashed up US big tech space.
Another sell-off today with the ASX hitting the lowest close in 11-months, although the selling is fairly anaemic in nature and on very light holidays volumes, but still, the direction of least resistance has clearly been down since the ASX 200 peaked at the end of July at 7472, now down ~600pts/8% from that milestone, back at the very bottom of its 12-month trading range.
When markets test our resolve, we stand back and try to “KISS” – keep it simple, stupid. Today’s question is simple: is our roadmap for bond yields wrong, and hence, do our portfolios require restructuring? Fighting the tape can be a dangerous practice, and although we constantly asses portfolios, they get special attention when our views on a very influential piece of the puzzle comes under pressure.
Quite a bizarre day for stocks with the market lower overall, although there were some decent intraday-rallies met with some decent intraday selling; ultimately a very choppy session on low school holiday volumes that saw the ASX 200 track back and test the bottom of its recent trading range – chalking up a 6-month low in the process.
The ASX200 has held the psychological 7000 area for the last couple of weeks, but it struggled to maintain a meaningful recovery on the upside as the overall market doesn’t appear to be attracting fresh funds, i.e. investors are happy to switch, but the allure of cash yielding ~4.5% is keeping some money on the sidelines. Yesterday, the AFR said that 42 economists they surveyed believe the RBA will cut rates in August 2024 compared to the previous expectations for a May cut, suggesting investors will need to be very patient to get a policy-induced tailwind.
September is finally in the rear-view mirror with the ASX200 ending the month down -3.5% (excluding dividends). However, it was encouraging last week to see some “buying into dips” enter the market, with the index often ending at its highs for the day, the Energy Sector +1.98% was again the shining light while the rate-sensitive Tech and Real Estate Sectors, struggled, both falling over -1%. Bond yields again dominated proceedings as they continued to challenge their decade-highs, which led to further stock/sector rotation:
Low volumes seen across the bourse to round out the week. A quiet Friday from the market’s perspective given Melbourne’s public holiday today (and Much of Australia off for Monday). Materials continued to do well, offsetting the Energy sector which gave back some gains after a strong week. A small decline (-20pts / -0.29%) seen on the ASX200 this week.
Gold in China fell the most in 3 years on Thursday, almost closing the gap with international prices that’s persisted for weeks. The precious metal tumbled -3.8% on the Shanghai Gold Exchange, with losses accelerating into the close, creating the impression that investors/traders were caught long. The pullback followed a major rally in local prices that had lasted for months, creating a record premium to that outside of the country until the elastic band inevitably snapped back.
