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The ASX200 fell 120-points / 1.8% last week with all of the losses, plus more, occurring on Friday as rising bond yields shook the confidence of global equities. Friday was the last trading day of February and it’s common that volatility becomes elevated at both the start and finish of a month, interestingly both January and February saw early strength with tops on the 17th & 25th respectively before weakness saw most of the months gains lost in fairly rapid fashion – as we’ve said previously it feels like the airs getting thin whenever 7000 is on the horizon. From a seasonal perspective the next few months are pretty neutral before weakness usually sets in for May & June hence at this stage we believe that MM’s mantra for 2021 of “buy weakness and sell strength” remains very much in play especially when we consider the last 2 months.
The ASX200 enjoyed a strong bounce on Thursday but after 4-days of choppy trading the market remains in a tight consolidation around 6800. As we all know bond markets are playing the tune for equities in 2021 so far and this week’s seen the Australian 10-year bond yield surge form 1.43% to 1.74%, that’s a whopping +22% increase in yields in just a few days compounding the more than +75% increase in less than 2-months, its not hard to see why investors are becoming fixated with the global economic recovery i.e. reflation. We only have to look under-the-hood of the ASX at some major stocks to see how its significantly transforming the stock / sector performance so far in 2021:
A poor day from a relative standpoint for the MM portfolio’s today, the Growth Portfolio hurt by a weak update by A2 Milk (A2M), although it was somewhat offset by a 7% rally by Ramsay Healthcare (RHC). For those thinking about how a move like this will impact on a portfolio which is always the important thing, the growth portfolio underperformed an 0.80% rise in the mkt today by around 0.40% – not good, but days like this happen.
The ASX200 gave back all of Tuesdays gains yesterday as the volatile consolidation pattern continues, the -0.9% fall was again highlighted by selling in the IT Sector but this time it was notably accompanied by some fairly aggressive profit taking in the Resources Sector with BHP’s -3.1% drop the most influential for the bears. Considering the markets basically gone nowhere for a month there are limited things catching our eye but a couple keep resurfacing:
More than 60% of the market finished lower today in a session that saw the recently hot resources cool off, BHP the biggest weight from an index perspective falling by 3.1% and taking 14pts from the ASX 200, however the most obvious sea of red came from the high value IT names, Seek (SEK) down -7.8%, Nanosonic (NAN) -8% and REA Group (REA) off by -4.42% to name a few, although the biggest landmine was Appen (APX) which fell 12% after downgrading guidance – Harry covers off this one below. Interestingly enough, while the BNPL stocks were down on the session, Zip Co (Z1P) fell just -0.84% which is a show of underlying strength in a weak market – both Afterpay (APT) and Z1P Co (Z1P) report tomorrow.
The ASX200 enjoyed an excellent rally yesterday as the Resources & Banking Sectors continued to drag a begrudging index higher although this time there were also some decent gains in the Real Estate & Industrial stocks which combined to take the index up almost 1%, less impressively only 60% of the stocks managed to close in positive territory. The short-term “value-growth” elastic band continues to stretch and the likelihood is when the surge higher by bond yields takes a breather growth stocks like IT and Healthcare will find some buying, how sustainable it can be is of course the million dollar question.
High value growth took it on the chin today, mirroring the performance we saw in US markets overnight where the Dow finished marginally higher while the Nasdaq fell 2.63%. The composition of the ASX being dominated by Banks and Resources was the key today and highlights why at MM we think Australia is in a very good position to outperform from here.
We’re making some amendments to the Emerging Companies Portfolio after a solid run. Stay active in this market our mantra
The ASX200 drifted lower yesterday but the action under the hood remains very pronounced with 10 members of the index rallying by more than 5% but less than 40% of the index actually managed to close in positive territory i.e. it’s all about backing the right horse or in this case thematic / sector. Monday saw the travel stocks come back into favour while copper continued its acceleration higher conversely yield sensitive stocks like the Healthcare, Real Estate, Utilities and IT Sectors continued to struggle.
A fairly lackluster way to kick off the week from an index perspective, however again, there was a fair amount of action under the hood. As is customary at MM we like to address the uncomfortable things first and today it was Costa Group (GCG) which rallied +12.97% on a good Full Year update. We sold CGC to fund the purchase of A2 Milk (A2M) last week which has also rallied, but not by as much. More on CGC’s result below.
