The banks are one area of the market which generally likes higher interest rates unless they go too far which leads to bad debts, so far so good in terms of loans but mortgage stress is certainly on the increase as interest rates continue to rise. The next 6 months will tell us how badly the RBA is hurting the average Australian, especially with more hikes likely in the coming months, as we said earlier MM believes the pain is around the corner and the local economy is about to slow significantly if nothing else due to the uncertainty of what comes next in 2024.
One good figure obviously doesn’t mean its time to restructure portfolios but market moves such as Wednesdays should remind investors that the market is very skewed toward interest rates being higher for longer and the Australian consumer struggling at least well into 2024 but as we said yesterday “stock markets form bottoms, on both the index and sector level, when things look their worst”. Yesterday may not prove to be the ultimate inflexion point but it has made us consider that the “strong getting stronger” can only last for so long before stocks/sectors that have been out of favour will inevitably play some performance catch-up.
With only 3 trading days remaining of FY23 the ASX200 is sitting up around +8% plus dividends, it certainly hasn’t felt like a standard solid year but when we stand back and look at the chart of the index it’s actually rotated in a fairly tight band for the last 2.5 years – as we keep trumpeting all of the action is unfolding on the stock and sector level.
MTS beat estimates yesterday sending the stock up +4.7% in the process, the full-year results were solid and slightly ahead of our expectations. The underlying profit of $307.5 million was up 2.6% YoY while the FY dividend of 22.5c fully franked was also better than expected (21.2c) which puts it on a yield of ~6% based on Monday’s close. However, it was the comments from Metcash chief executive Doug Jones that caught our attention, especially when we consider discretionary spending.
Over the last few months, MM forecasted that the next market cycle would be one of the increased recession fears and the likes of the RBA, FED and BOE are certainly delivering. We believe the value-growth elastic band has further to stretch although we believe its too mature to chase at current levels i.e. tech stocks can continue to outperform the likes of resources but it’s now likely to be caused by pockets of weakness in the miners as opposed to ongoing runaway strength in tech.
It would have been very easy to change the structure of today’s report with the elevated volatility in many pockets of the ASX but we opted for 4 stocks that we are considering adding to/buying if we see further weakness over the coming weeks although obviously, this list may evolve depending on news flows and the respective performance of stocks we are monitoring closely and holding in our respective portfolios.
The Competition Tribunal gave some early Christmas cheer to Optus while frustrating both TPG Telecom (TPG) and Telstra (TLS) on Wednesday as it upheld the ACCC’s original ruling to block TLS from sharing mobile network infrastructure with TPG. An appeal is still a distinct possibility, especially as building mobile towers in regional Australia is not always commercially viable putting into question whether the consumer will benefit alongside Optus – perhaps they could have allowed it with some strict guidelines skewed in favour of the consumer?
Tuesday saw the ASX200 embrace the balanced RBA minutes advancing almost +0.9% on broad-based gains that saw only 20% of the main board close down on the day. There were a few pockets of weakness on the stock level but as we’ve been saying for weeks the path of least resistance remains on the upside even following weak seasons on overseas bourses. Further stimulus from Beijing and the local market could be testing its all-time in a matter of weeks i.e. it’s less than 4 % away now.
Insurance stocks generally like higher bond yields because they hold collected premiums in bonds garnering interest before paying out on claims as and when required i.e. higher interest rates generate higher income from these funds. Hence the dramatic move in yields over the last 12 months has been a clear tailwind for the sector’s revenue. Also, recently we have seen companies start to demonstrate their pricing power with Insurance Australia Group (IAG), which owns the well-known NRMA, hiking the cost of household insurance by +20% and car insurance by +14% - a touch more than inflation!
The ASX200 finished the shortened week on Friday up +1.8% as the influential Tech, Financial and Materials Sectors all closed up over 3%. China was the catalyst for the miners as they cut rates for the 1st time in 10 months, at MM we have been looking for the Resources Sector to trigger buy signals after analysts have become fixated on a looming recession, this may still unfold if central banks fail to balance their fight against inflation with an economic contraction but China pressing the stimulus button is a huge help for commodities and related stocks. We are bullish on the Resources Sector medium/long term and plan to increase our exposure over the coming months, as opportunities arise.
One good figure obviously doesn’t mean its time to restructure portfolios but market moves such as Wednesdays should remind investors that the market is very skewed toward interest rates being higher for longer and the Australian consumer struggling at least well into 2024 but as we said yesterday “stock markets form bottoms, on both the index and sector level, when things look their worst”. Yesterday may not prove to be the ultimate inflexion point but it has made us consider that the “strong getting stronger” can only last for so long before stocks/sectors that have been out of favour will inevitably play some performance catch-up.
With only 3 trading days remaining of FY23 the ASX200 is sitting up around +8% plus dividends, it certainly hasn’t felt like a standard solid year but when we stand back and look at the chart of the index it’s actually rotated in a fairly tight band for the last 2.5 years – as we keep trumpeting all of the action is unfolding on the stock and sector level.
MTS beat estimates yesterday sending the stock up +4.7% in the process, the full-year results were solid and slightly ahead of our expectations. The underlying profit of $307.5 million was up 2.6% YoY while the FY dividend of 22.5c fully franked was also better than expected (21.2c) which puts it on a yield of ~6% based on Monday’s close. However, it was the comments from Metcash chief executive Doug Jones that caught our attention, especially when we consider discretionary spending.
Over the last few months, MM forecasted that the next market cycle would be one of the increased recession fears and the likes of the RBA, FED and BOE are certainly delivering. We believe the value-growth elastic band has further to stretch although we believe its too mature to chase at current levels i.e. tech stocks can continue to outperform the likes of resources but it’s now likely to be caused by pockets of weakness in the miners as opposed to ongoing runaway strength in tech.
It would have been very easy to change the structure of today’s report with the elevated volatility in many pockets of the ASX but we opted for 4 stocks that we are considering adding to/buying if we see further weakness over the coming weeks although obviously, this list may evolve depending on news flows and the respective performance of stocks we are monitoring closely and holding in our respective portfolios.
The Competition Tribunal gave some early Christmas cheer to Optus while frustrating both TPG Telecom (TPG) and Telstra (TLS) on Wednesday as it upheld the ACCC’s original ruling to block TLS from sharing mobile network infrastructure with TPG. An appeal is still a distinct possibility, especially as building mobile towers in regional Australia is not always commercially viable putting into question whether the consumer will benefit alongside Optus – perhaps they could have allowed it with some strict guidelines skewed in favour of the consumer?
Tuesday saw the ASX200 embrace the balanced RBA minutes advancing almost +0.9% on broad-based gains that saw only 20% of the main board close down on the day. There were a few pockets of weakness on the stock level but as we’ve been saying for weeks the path of least resistance remains on the upside even following weak seasons on overseas bourses. Further stimulus from Beijing and the local market could be testing its all-time in a matter of weeks i.e. it’s less than 4 % away now.
Insurance stocks generally like higher bond yields because they hold collected premiums in bonds garnering interest before paying out on claims as and when required i.e. higher interest rates generate higher income from these funds. Hence the dramatic move in yields over the last 12 months has been a clear tailwind for the sector’s revenue. Also, recently we have seen companies start to demonstrate their pricing power with Insurance Australia Group (IAG), which owns the well-known NRMA, hiking the cost of household insurance by +20% and car insurance by +14% - a touch more than inflation!
The ASX200 finished the shortened week on Friday up +1.8% as the influential Tech, Financial and Materials Sectors all closed up over 3%. China was the catalyst for the miners as they cut rates for the 1st time in 10 months, at MM we have been looking for the Resources Sector to trigger buy signals after analysts have become fixated on a looming recession, this may still unfold if central banks fail to balance their fight against inflation with an economic contraction but China pressing the stimulus button is a huge help for commodities and related stocks. We are bullish on the Resources Sector medium/long term and plan to increase our exposure over the coming months, as opportunities arise.
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