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We are adding to our banking exposure into weakness.
Through 2023 MM has been pointing out how equities were ignoring rising bond yields i.e. the previous 4 times we saw local 3-year yields above 3.5% the ASX200 was under 7000. However, ironically this month has seen the local index plunge towards 7000 as yields finally turn lower following the collapse of SVB – a great example of what drives markets transitioning over time.
The jitters caused by the collapse of Silicon Valley Bank caused a stir in the local market today, even after it was announced that depositors with the troubled bank would have access to their funds in full from Monday thanks to the US Treasury, the Fed and the Federal Deposit Insurance Corp (FDIC) that is currently managing the bank’s assets.
After numerous months of hanging on every word/innuendo from the Fed, RBA, BOE, et al we have a new gorilla in the room i.e. the collapse of Silicon Valley Bank (SIVB US), the 2nd largest bank to collapse in the US history. The wheels started to fall off last Wednesday when the company surprised the market by announcing it needed to raise $US2.2bn to shore up its balance sheet, the rest is already history as we witnessed a hysteria-induced run on the bank largely blamed on Venture Capitalists, customers withdrew a staggering $US42bn by the close of business on Thursday.
The ASX200 plunged -166 points/2.28% on Friday resulting in a -1.9% decline for the week, not too bad considering the likes of BHP Group (BHP), RIO Tinto (RIO), and CSL Ltd (CSL) all traded ex-dividend but it certainly felt far worse at 4 pm yesterday afternoon. This week’s issue wasn’t the macroeconomic picture that’s plagued equities all year but another negative “Black Swan” shock from crypto land as silicon valley bank SVB Financial (SIVB US) struggles to remain in business – we’ve even heard suggestions of a US bailout from Walls Street legend Bill Ackman. Whatever the ultimate result it confirms our opinion that Bitcoin et al is not an investment-grade option until further notice.
US stocks had a tough session overnight ahead of US Jobs Data and ongoing concerns following Jerome Powell’s extremely hawkish Senate testimony earlier in the week, the S&P500 closed down -1.85%. The SPI Futures are pointing to a -1.1% fall early this morning with BHP off 50c in the US while the banks had a tough night dragging the Financial Sector down -4.1%, not a good read-through for the ASX today.
Local equities opened slightly lower with likes of BHP Group (BHP), RIO Tinto (RIO), Mineral Resources (MIN), South32 (S32), CSL Ltd (CSL), and ASX Ltd (ASX) all trading ex-dividend initially weighing on the index. However concerted steady broad-based buying across the market saw over 70% of the index finish up on the day led by some standout performances across the coal and tech names ably supported by a strong day for the banks where we saw NAB, WB,C, and ANZ all pass on the RBA’s rate hike to mortgage holders, this should make Philip Lowe happy! However his recent dovish appears to have ignited some buying into the local market which is continuing to outperform its peers.
We are buying back into SEK in the Flagship Growth Portfolio
Last week saw approvals to build new homes in Australia fall by the most on record as permits for private houses tumbled which implies weak residential property investment will drag on the economy through 2023/4. Total dwelling approvals tumbled 27.6%, as the weak trend continues with permits to build new private sector houses slumping 13.8% – the 5th straight monthly decline and the lowest since June 2012 according to the Australian Bureau of Statistics (ABS).
