The ASX Telco index is dominated by Telstra (TLS) but through 2023 its been a very mixed bag for the four main stocks with TPG Telecom (TPG) +9.8% best on ground while Spark NZ (SPK) -7.6% has carried the wooden spoon, TLS is down just -0.6% underperforming the ASX200 which is up over +1% year-to-date.
The ASX200 ended last week down another -2.6% taking August’s pullback to -3.5% with nine trading days remaining. Risk sentiment has been significantly dampened by an ever-hawkish Fed and a Chinese economy that is struggling to regain its “mojo” post the country's severe zero-COVID policy – strict lockdowns have exacerbated issues in the likes of property that were already surfacing in China. Last week we saw the PBOC cut rates for the second time since June.
The gold price has struggled since its May high with the a recovery by the $US and firm bond yields weighing on precious metals i.e. when you can get 5% on deposit in the bank, gold and its respective stocks need to advance 5% just to match this risk-free rate of return - a far different story to when rates are at zero! At MM we continue to believe that bond yields are at/close to a pivot high that should deliver an improving tailwind to the Gold Sector over the coming quarters.
The US FAANG+ Index has now corrected over -10% from its July high, nothing too sinister in our opinion considering its still up over +65% year to date. The overnight weakness is being attributed to the hawkish Fed minutes but we believe it’s more a case of negative sentiment from China combining with a market that’s rallied very strongly over the last 9 months i.e. its simply being in need of a rest.
The initial reaction to the stimulatory move by the PBOC was positive with resource stocks in particular reversing early losses e.g. BHP Group (BHP) rallied +50c from its lows but by the close it had surrendered half of the move to end down -0.3%. The move by the PBOC came in as China suspended reporting youth unemployment rates from August, that’s one way to hide souring numbers. In our opinion, the Politburo, China's prime decision-making body, will need to pull more levels to turn around their juggernaut economy and consumer sentiment.
Beijing has undoubtedly got its work cut out, July's CPI fell by -0.3% year on year while the PPI fell -4.4% over the same period, the 1st time both numbers have been negative since November 2020 when COVID was the only story in town hence the deflation concerns are real and well-founded and MM firmly believes Xi Jinping et al must step up. However, it's not all bad news with Chinese household savings continuing to rise illustrating that a significant part of the issue is consumer confidence which can be reversed with the appropriate action.
China's economy has been misfiring post its extreme COVID-zero lockdown which both failed in its objective and set their economy back many, many years. Last week we saw Chinese banks extend the smallest amount of monthly loans in 14 years illustrating the deflationary pressures weighing on the world's second-largest economy. The number of new loans announced by the PBOC came in less than half of that forecast by the economists covered by Bloomberg.
We’ve edged into what we see as the ‘deep value’ space, already buying a few beaten up stocks in Elders (ELD), Lendlease (LLC) and Magellan (MGF), looking for turnarounds to unfold on the stock specific level – encouragingly all of these positions are showing a small paper profit with an average of +5.5%.
We currently hold two property positions in our Active Income Portfolio which are unloved and priced accordingly while in our Growth Portfolio, we only hold Goodman Group (GMG) which is regarded by many as more of a growth play. Investors remain scared of property and other cyclical sectors however we think this pain, or at least the vast majority of it, is now priced in and we should be increasing our attention towards identifying the opportunities.
The theme through most of 2023 has been the strong getting stronger and vice versa and this is playing out early this reporting season with buyers showing no interest in buying dips after a disappointing result – not classic bull market price-action but very befitting of one of the most hated bull markets in history. This morning will see a big test for the financials with investors needing to digest Commonwealth Bank (CBA) and Suncorp (SUN) results this morning.
The ASX200 ended last week down another -2.6% taking August’s pullback to -3.5% with nine trading days remaining. Risk sentiment has been significantly dampened by an ever-hawkish Fed and a Chinese economy that is struggling to regain its “mojo” post the country's severe zero-COVID policy – strict lockdowns have exacerbated issues in the likes of property that were already surfacing in China. Last week we saw the PBOC cut rates for the second time since June.
The gold price has struggled since its May high with the a recovery by the $US and firm bond yields weighing on precious metals i.e. when you can get 5% on deposit in the bank, gold and its respective stocks need to advance 5% just to match this risk-free rate of return - a far different story to when rates are at zero! At MM we continue to believe that bond yields are at/close to a pivot high that should deliver an improving tailwind to the Gold Sector over the coming quarters.
The US FAANG+ Index has now corrected over -10% from its July high, nothing too sinister in our opinion considering its still up over +65% year to date. The overnight weakness is being attributed to the hawkish Fed minutes but we believe it’s more a case of negative sentiment from China combining with a market that’s rallied very strongly over the last 9 months i.e. its simply being in need of a rest.
The initial reaction to the stimulatory move by the PBOC was positive with resource stocks in particular reversing early losses e.g. BHP Group (BHP) rallied +50c from its lows but by the close it had surrendered half of the move to end down -0.3%. The move by the PBOC came in as China suspended reporting youth unemployment rates from August, that’s one way to hide souring numbers. In our opinion, the Politburo, China's prime decision-making body, will need to pull more levels to turn around their juggernaut economy and consumer sentiment.
Beijing has undoubtedly got its work cut out, July's CPI fell by -0.3% year on year while the PPI fell -4.4% over the same period, the 1st time both numbers have been negative since November 2020 when COVID was the only story in town hence the deflation concerns are real and well-founded and MM firmly believes Xi Jinping et al must step up. However, it's not all bad news with Chinese household savings continuing to rise illustrating that a significant part of the issue is consumer confidence which can be reversed with the appropriate action.
China's economy has been misfiring post its extreme COVID-zero lockdown which both failed in its objective and set their economy back many, many years. Last week we saw Chinese banks extend the smallest amount of monthly loans in 14 years illustrating the deflationary pressures weighing on the world's second-largest economy. The number of new loans announced by the PBOC came in less than half of that forecast by the economists covered by Bloomberg.
We’ve edged into what we see as the ‘deep value’ space, already buying a few beaten up stocks in Elders (ELD), Lendlease (LLC) and Magellan (MGF), looking for turnarounds to unfold on the stock specific level – encouragingly all of these positions are showing a small paper profit with an average of +5.5%.
We currently hold two property positions in our Active Income Portfolio which are unloved and priced accordingly while in our Growth Portfolio, we only hold Goodman Group (GMG) which is regarded by many as more of a growth play. Investors remain scared of property and other cyclical sectors however we think this pain, or at least the vast majority of it, is now priced in and we should be increasing our attention towards identifying the opportunities.
The theme through most of 2023 has been the strong getting stronger and vice versa and this is playing out early this reporting season with buyers showing no interest in buying dips after a disappointing result – not classic bull market price-action but very befitting of one of the most hated bull markets in history. This morning will see a big test for the financials with investors needing to digest Commonwealth Bank (CBA) and Suncorp (SUN) results this morning.
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