Viewpoint: Bullish
After falling for 6-months major bond yields have been edging high over recent weeks and at MM we believe they are looking for a low, one that should drive relative equity performance moving forward.
One of the reasons we believe its premature to significantly increase cash levels is provided by the Japanese Nikkei. We recently identified this index as arguably our favourite and it enjoyed a standout performance last week and we believe fresh decade highs are merely a matter of time. Our assumption is that if Japanese stocks are going to maintain…
US stocks continue to grind higher with no sell signals in-sight with the influential “Big Tech” names continuing to drag the market higher. MM is looking for the Value Index to outperform Growth over the next 6-months but its important to fully understand our thoughts / logic:
Equities have experienced a little weakness recently but when we put things into perspective the pullbacks are barely a ripple on the pond i.e. the ASX200 has dipped -3.8% and US S&P500 just -1.9%. As is so often the case the press like to latch onto anything negative regularly blowing things out of proportion however in this case when we take everything into account further…
The ASX200 and global equities have rallied strongly since their early 2020 COVID meltdown with virtually all major indices posting fresh all-time highs in recent weeks but there might be a new canary in the coal mine, the main question being will it be around for just a few weeks, or much longer. Firstly lets reiterate 3 of the main reasons stocks have “wobbled” in recent sessions:
FMG has now plunged well over 30% from its July high, even more than BHP Group (BHP) which has dipped only 25% but after we take into account the larger yield on offer from FMG it’s a close run thing. While we are cognisant of our highly correlated position in BHP a relatively small position in FMG around $18 is very appealing, alternatively we are considering trimming our position in BHP slightly to help fund part of a FMG purchase.
Alumina has pulled back 6% from this weeks high back into an area of solid risk / reward. We like AWC with the added attraction of a more than 4% fully franked yield. We are meeting the company today at 11am. NB: Alumina prices rallied hard overnight.
We mentioned VUK yesterday, this UK bank appeals to MM because it affords us exposure to 2 themes we like – a rising bond yield environment and strong economic recovery in Europe. As witnessed yesterday as it dropped almost 8% in just one session this is a volatile stock and our position size will subsequently be smaller than with the likes of CBA and NAB, a repeat performance of yesterday’s unwind and this stock will be in MM’s buy zone.
We often mention how it’s just a few large tech stocks which continue to drag US indices ever higher and this is perfectly illustrated by the small cap Russell 2000 index which peaked in Q1 i.e. this index represents the smallest 2000 stocks in the Russell 3000 or ~8% by market cap. While we remain bullish into next year a washout below its March lows we believe would provide an excellent risk / reward buying opportunity – one for the hitlist.
Unlike CBA and GMG fund manager MFG failed to hold recent lows yesterday as it continues to struggle in 2021, posting fresh lows for the year by the close of the day. While the stocks forecast to yield over 5% into 2022 which we feel is attractive, it still trades at a reasonable 20% premium to the sector, a premium built on a strong performance track record however that is now being questioned.
