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.
An increasing Australian population will ultimately lead to increased money flow into stocks and, by definition, support valuations as the growing pool of workers will likely further swell Australia's pension fund assets to a colossal ~A$14 trillion by 2050, with a younger workforce likely to see asset allocations remain favourable toward stocks. We don’t believe the subsequent growth is currently priced into equities with the implied medium-term earnings growth for the ASX200 of just under 4.0% per annum over the next decade, comparing favourably to GDP estimates of around ~5.3% p.a. over the same period.
Tuesday was another tough day at the office for Australian equities, with a +0.2% gain by the Energy Sector the only shining light as the index ended down 0.5%. It came as no surprise to MM that buyers remained on the sidelines before Wednesday night's FOMC meeting, i.e. will the Fed hike, probably not, but the bias implied through the Dot Plot is what’s likely to determine how the market moves. With the S&P500 within striking distance of its 2023 high and the US 10-year yielding 4.3%, we believe there is a diminishing amount of room for a hawkish Fed.
Both pre and post-COVID the banks and insurers have followed a relatively similar path although there was a period of major outperformance by the Banks through 2021, and early 2022. The banking index in a similar fashion to the ASX, has trod water over the last two years while the insurers have ground higher. Hence we question today whether the likes of QBE & IAG will prove a better investment into 2024 and beyond, especially with some economists concerned by the dramatically named “mortgage cliff” although it hasn’t called any major issues so far.
The ASX200 is almost flat after a fascinating first half of September, although under the hood, it’s a very different story, with the Energy Index up +3.6% while the Real Estate sector is down -3.2%. Unfortunately for the index, the heavyweight financials and materials sectors are also positive, while the other eight sectors are all negative to date for September. As we keep saying, until further notice, most of the excitement into 2024 will be on the stock and sector level.
Uranium stocks have surged higher over the last 48 hours and we believe this is a move to embrace, not fade – remember our very bullish outlook in the MM Resources into FY24 webinar. The uranium price has more than doubled over recent months, posting fresh decade highs in the process. It’s a straightforward game of supply & demand that has reached a tipping point as Utilities that have been drawing down inventory levels suddenly have to chase supply.
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.
An increasing Australian population will ultimately lead to increased money flow into stocks and, by definition, support valuations as the growing pool of workers will likely further swell Australia's pension fund assets to a colossal ~A$14 trillion by 2050, with a younger workforce likely to see asset allocations remain favourable toward stocks. We don’t believe the subsequent growth is currently priced into equities with the implied medium-term earnings growth for the ASX200 of just under 4.0% per annum over the next decade, comparing favourably to GDP estimates of around ~5.3% p.a. over the same period.
Tuesday was another tough day at the office for Australian equities, with a +0.2% gain by the Energy Sector the only shining light as the index ended down 0.5%. It came as no surprise to MM that buyers remained on the sidelines before Wednesday night's FOMC meeting, i.e. will the Fed hike, probably not, but the bias implied through the Dot Plot is what’s likely to determine how the market moves. With the S&P500 within striking distance of its 2023 high and the US 10-year yielding 4.3%, we believe there is a diminishing amount of room for a hawkish Fed.
Both pre and post-COVID the banks and insurers have followed a relatively similar path although there was a period of major outperformance by the Banks through 2021, and early 2022. The banking index in a similar fashion to the ASX, has trod water over the last two years while the insurers have ground higher. Hence we question today whether the likes of QBE & IAG will prove a better investment into 2024 and beyond, especially with some economists concerned by the dramatically named “mortgage cliff” although it hasn’t called any major issues so far.
The ASX200 is almost flat after a fascinating first half of September, although under the hood, it’s a very different story, with the Energy Index up +3.6% while the Real Estate sector is down -3.2%. Unfortunately for the index, the heavyweight financials and materials sectors are also positive, while the other eight sectors are all negative to date for September. As we keep saying, until further notice, most of the excitement into 2024 will be on the stock and sector level.
Uranium stocks have surged higher over the last 48 hours and we believe this is a move to embrace, not fade – remember our very bullish outlook in the MM Resources into FY24 webinar. The uranium price has more than doubled over recent months, posting fresh decade highs in the process. It’s a straightforward game of supply & demand that has reached a tipping point as Utilities that have been drawing down inventory levels suddenly have to chase supply.
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