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China’s property woes again dominated the financial headlines overnight, with China putting Evergrande’s billionaire founder under police control while the mansion seized from the chairman was listed for $112mn – a far scarier proposition than faced by most of their local equivalents. China property stocks slid to their lowest level since 2011 as recent short-term optimism evaporated on the news, plus the ongoing weight of massive debt problems.
A solid session given the weak leads from the US overnight, inflation came in as expected while we saw some bargain hunting in the property sector with some interesting moves playing out after a tough time.
The last few weeks have seen bond yields test new decade highs, the Australian 10-year closed above 4.4% on Tuesday. Stocks have struggled through September as yields climbed higher, in our opinion, primarily because most investors had positioned themselves for rate cuts in 2024 that now seem a pipe dream. i.e. the crowd was wrong. At MM, we continue to believe that the current decline by local bonds (yields higher) will ultimately fail, but after breaching their support that’s held since June 2022, moves into Christmas are probably in the hands of US Treasuries.
The ASX attempted to follow the recovery that played out from weakness over the past two sessions, but it was all too much today, weighed by selling across the IT & Resources sectors as China heads towards a week of national holidays, starting on the 29th.
On the 18th of this month, we saw the usual rebalancing unfold for the ASX200, one of the reasons the index does well over time as the strong enter and the weak fall by the wayside. There’s potentially a lesson here with S&P naturally discarding its underperformers and embracing newfound stars, portfolios that adopt a similar psyche over time are likely to outperform those that don’t cut losses. Remember, the best investors/traders regularly follow one golden rule: Run your profits and cut your losses. At MM, our opinion is that the second half of this saying is the most important, i.e., if a stock we are holding drops out of the ASX200 for whatever reason, we should question if it’s still worth holding.
The ASX saw the worst of it early, down nearly 50 points before another spirited recovery ensued, in quiet trade, impacted by School holidays overlapping with the Rugby World Cup. Many Fundies no doubt wish they stayed on the desk rather than witness the Wallabies limp out in the pool rounds!
The ASX200 recovered impressively from an early 100-point drop on Friday morning. On balance, we believe the index will again hold the 7000 psychological support area, although, from a technical perspective, we would need a close above 7150 to believe a swing low is in place. With all 11 sectors closing lower last week, there wasn’t much encouragement for the bulls, but we are conscious that just one week ago, it was the complete reverse.
We’re entering the last week of September, and even after Friday’s stellar recovery from the early lows, the local index is still down -3.2% with just five trading days remaining. The action was “fast & furious” during the week as investors strived to fathom the path of interest rates/bond yields into and through 2024. At MM, we don’t believe there were many surprises from central banks, but the volatility across equities suggests we were in the minority:
The ASX200 traded below the 7000 level this morning for the first time since March as the risk-off trade continued after the Hawkish update from the Fed yesterday, but a huge intra-day turnaround took hold and the ASX200 ultimately finished marginally higher, rallying 111pts from the morning lows which was simply a phenomenal effort! The intra-day buying helped snap a 4-day losing streak, though the index fell by -210pts/-2.89%.
Tech stocks traditionally don’t like rising interest rates, although, as the chart below illustrates, it’s not a perfect science. Over the last 12 months, the sector has roared ahead as a number of the mega-caps showed they could deliver earnings in a tough economic backdrop. Plus, they’ve been anticipating “peak interest rates”, but the Fed’s recent hawkish commentary has raised questions about the timing of this view into Christmas and beyond.
