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We are increasing our position in Mineral Resources (MIN) in recent weakness. Adding 1% to bring the target weight to 5% in the portfolio.
It’s hard to know exactly which factor is dragging on equities the most, but the combination isn’t pretty, the ASX200 closed down -3.5% in September, and for October, it has already fallen another -2.1% with another ~1% drop likely this morning following steep losses on Wall Street on Friday night. We are not in the business of second-guessing how the Israel -Hamas conflict will unfold, but when we read headlines such as “Israel strikes Gaza, Syria and the West Bank”, it does feel like the conflict will overhang markets for weeks/months to come.
Last week saw broad-based weakness across the ASX200, the index closed down -2.1% after particularly aggressive selling on Thursday and Friday, the rate-sensitive Tech -5.1% and Consumer Discretionary -3.4% Sectors led the decline, while only the energy Sector closed higher over the 5-days as tensions increased across the Middle East, e.g. Whitehaven Coal (WHC) +12.3%, Santos (STO) +2.9%, Beach Petroleum (BPT) +2.9%, and Woodside Energy (WDS) +1.9%. The same two issues continue to weigh on stocks:
The ASX caught a cold from the weakness seen in the US overnight. Selling came on the back of Fed Chair Jerome Powell’s hawkish comments which sent to the US 10-year rate to 16-year highs, just a shave shy of 5%. Further tensions in the Middle East also weighed on growth assets, though that was supportive of Energy and Precious Metals, two areas of the market that largely bucked the trend today. The ASX200 fell -150pts/-2.13% during the week.
One of the three stocks we are revisiting today is the best-performing member of the ASX200 year-to-date, although it will lose that position when trading recommences after its capital raise. The other two, Whitehaven Coal (WHC) -20.5%, and Ramsay Healthcare (RHC) -22%, have regularly occupied the lower enclosure through 2023. As is usually the case with “situation” stocks, the best approach is to consider the combination of risk/reward and “what if scenarios”.
A tough day at the office for the ASX, tracking weakness in US/European markets that permeated across Asia. More tension in the Middle East is threatening higher Oil prices that would underpin persistent inflation and higher interest rates, all very logical and these concerns have pushed the ASX 200 back down to the bottom of its recent trading range.
Over the last eighteen months, as interest rates soared higher, the small caps have stood patiently in the naughty corner as their cost of funding has gone from bad to worse, whereas US Big Tech has rallied, assisted by their large mountains of cash. If we are correct and bond yields are “looking for a top”, then stock/sector reversion is likely in many pockets of the market, today, we have looked at the outperformers with an eye on whether some look rich at current levels.
A choppy but overall positive session at the index level, although there was a lot happening under the hood, with some hits and a few big misses to get across today.
US stocks closed lower overnight, with an NVIDIA-led sell-off in Big Tech” weighing on the indices, the Dow managed to edge higher, whereas the NASDAQ closed down -0.3%. Under the hood, Bank of America (BAC US) reported strong earnings, but Goldman Sachs (GS US) was a messier result following losses from its investment in the Greensky fintech business. Nvidia led chip companies lower as the U.S. Government looks to tighten restrictions on chip exports to China.
The ASX had a positive session, although finished ~40pts below the highs after the latest RBA minutes showed another rate hike is not off the table. The list of today’s winners is an eclectic bunch with one thing in common, most have had a horrible last 12-months, perhaps some bargain hunting might be about to emerge.
