MM increased our position in First Solar (FSLR US) overnight from 4% to 6% into the current market weakness. The move aligned with our current rhetoric that we believe US stocks are looking for a low, and our migration “up the risk curve” is most likely to be executed through increasing existing positions. Following the purchase, we hold 5% cash in our International Equities Portfolio which launched mid-2019 and has enjoyed solid performance since inception, with the intention of opening this portfolio up for direct investment (via Market Matters Invest) this side of Christmas.
Last time MM went bargain hunting in the underperformers via Lend Lease (LLC), Magellan (MFG) and Elders (ELD), things didn’t turn out too well. We subsequently closed ELD for a loss (-9%) while we hold LLC (down -11%) & MFG (up +6.7%). Today, we’ve looked at things slightly differently, as discussed at length, bond yields have controlled equities through 2023, with the lack of traction by the small caps illustrating the point perfectly, i.e. small companies often need to borrow to fund growth, and with these costs rising plus the additional premium usually allocated to smaller companies borrowing it's been hard work for the space to embrace the recovery in say the cashed up US big tech space.
When markets test our resolve, we stand back and try to “KISS” – keep it simple, stupid. Today's question is simple: is our roadmap for bond yields wrong, and hence, do our portfolios require restructuring? Fighting the tape can be a dangerous practice, and although we constantly asses portfolios, they get special attention when our views on a very influential piece of the puzzle comes under pressure.
The ASX200 has held the psychological 7000 area for the last couple of weeks, but it struggled to maintain a meaningful recovery on the upside as the overall market doesn’t appear to be attracting fresh funds, i.e. investors are happy to switch, but the allure of cash yielding ~4.5% is keeping some money on the sidelines. Yesterday, the AFR said that 42 economists they surveyed believe the RBA will cut rates in August 2024 compared to the previous expectations for a May cut, suggesting investors will need to be very patient to get a policy-induced tailwind.
Gold in China fell the most in 3 years on Thursday, almost closing the gap with international prices that’s persisted for weeks. The precious metal tumbled -3.8% on the Shanghai Gold Exchange, with losses accelerating into the close, creating the impression that investors/traders were caught long. The pullback followed a major rally in local prices that had lasted for months, creating a record premium to that outside of the country until the elastic band inevitably snapped back.
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.
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.
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 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.
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.
Last time MM went bargain hunting in the underperformers via Lend Lease (LLC), Magellan (MFG) and Elders (ELD), things didn’t turn out too well. We subsequently closed ELD for a loss (-9%) while we hold LLC (down -11%) & MFG (up +6.7%). Today, we’ve looked at things slightly differently, as discussed at length, bond yields have controlled equities through 2023, with the lack of traction by the small caps illustrating the point perfectly, i.e. small companies often need to borrow to fund growth, and with these costs rising plus the additional premium usually allocated to smaller companies borrowing it's been hard work for the space to embrace the recovery in say the cashed up US big tech space.
When markets test our resolve, we stand back and try to “KISS” – keep it simple, stupid. Today's question is simple: is our roadmap for bond yields wrong, and hence, do our portfolios require restructuring? Fighting the tape can be a dangerous practice, and although we constantly asses portfolios, they get special attention when our views on a very influential piece of the puzzle comes under pressure.
The ASX200 has held the psychological 7000 area for the last couple of weeks, but it struggled to maintain a meaningful recovery on the upside as the overall market doesn’t appear to be attracting fresh funds, i.e. investors are happy to switch, but the allure of cash yielding ~4.5% is keeping some money on the sidelines. Yesterday, the AFR said that 42 economists they surveyed believe the RBA will cut rates in August 2024 compared to the previous expectations for a May cut, suggesting investors will need to be very patient to get a policy-induced tailwind.
Gold in China fell the most in 3 years on Thursday, almost closing the gap with international prices that’s persisted for weeks. The precious metal tumbled -3.8% on the Shanghai Gold Exchange, with losses accelerating into the close, creating the impression that investors/traders were caught long. The pullback followed a major rally in local prices that had lasted for months, creating a record premium to that outside of the country until the elastic band inevitably snapped back.
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.
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.
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 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.
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.
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