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Todays afternoon note will not be available from Market Matters. We’ll provide an overview of the week in tomorrow’s Q&A Report. Apologies for the inconvenience.
The Market Matters Team
We are making two changes to the Growth Portfolio this morning
The Utilities Sector is not large, making up only 2% of the ASX200 by market cap. However, the sector is up +9.5% in 2024, compared to the ASX200, which has only advanced +1.7%, making it the second best-performing sector behind tech on the main board. With a market concerned about valuations and interest rates poised to fall through 2024/5, defensive plays with solid, reliable yields are likely to maintain their recent solid performance.
A tough session for the ASX today with a confluence of factors combining to hit Property, Financials and Retailers fairly hard. Signs that consumers are starting to feel the pinch of higher rates was the common theme, with both CBA and Judo highlighting an uptick in arrears on the same day that several retailers flagged softer sales.
For more than a decade, Australian fund managers have leapt from one calamity to the next, creating an absolute minefield for Australian investors. A quick look at the charts of Janus Henderson (JHG), Platinum (PTM), and AMP (AMP) tells a clear, painful tale of wealth destruction. Now Perpetual (PPT) has joined the fray, with its share price basically halving over the last few years against a backdrop of a broader market making new all-time highs.
The market was strongest early before tapering off throughout the day, a late spurt putting the ASX200 in the green (just) on a day dominated by company-specific news flow, generally coming out of the very popular Macquarie conference.
Earnings undoubtedly drive share prices over the medium/long term, but when it comes to sharp short-term swings in overall market valuations/sentiment, there’s nothing like monetary policy to dictate terms for stocks, with the RBA front and centre yesterday. The correlation between the local index and 3-year bonds has been extremely close over the last year, which is the major reason MM keeps a close eye on credit markets. The RBA left interest rates unchanged on Wednesday at 4.35%, while they indicated rates would need to “stay higher for longer” to rein in sticky inflation; importantly, there was little suggestion that rates would again start to rise as many had feared. The main pressure on inflation is coming from the strong jobs market, as well as higher petrol prices, which has a knock-on effect throughout the economy – the latter is frustrating when we consider crude oil has fallen 5% in 2024.
The local market enjoyed the best session in 3 months today with a broad-based rally for much of the day turning into overdrive following a more ‘dovish’ than expected RBA which had interest rates on hold this afternoon. The gain of more than 100 points is even more impressive given NAB went ex-dividend today, the bank falling 52c vs 84c dividend, managing to hold onto more than just the attached franking credits.
We are making several changes to the Income Portfolio Today
A surging copper price and the market belief that the industrial metal will be in short supply in the years ahead as we move towards a carbon-neutral world were the catalysts for BHP’s purchase of OZ Minerals (OZL) last year and bid for Anglo-American (AAL LN) last month. In our opinion, there’s plenty more corporate activity likely in the copper space over the coming years, with the industrial metal remaining a core bullish view for MM. As we’ve said from the start, we would find it highly unlikely that BHP would approach this transaction with a one and done mentality and a second or even third bid would be likely. The AFR is running with a story this morning that both Argo Investments and Wilson Asset Management have said they are satisfied that value would be created by combining BHP and Anglo American’s copper and coal assets, this sort of PR can often be used as a way of preparing or softening the market for when the higher bid does come, which we think is inevitable.
