| Top Stories Friday, 1 March 2024, the ASX gained 46.90 points to finish at 7745.90. A NEW ALL TIME HIGH. The market rallied on the back of the NASDAQ, which closed this morning at a NEW ALL-TIME HIGH of 16,091. As noted later, this is over 1000% higher than the bottom that occurred 15 years ago in the GFC. The ASX opened higher and pushed to a new high in the morning but gave up all the rally until it successfully rallied again in the afternoon, probably on the Chinese PMI numbers as resources stocks were the best sector up 2%. Japan also hit a new all-time high, nearing 40,000 points. Japanese companies are benefiting from a lower Yen and increased interest in technology. The US, Australian, and European markets are also doing well with interest rates expected to move lower at some point in 2024. Below is the February market and investment review and Morgan Stanley’s updated market outlook. They had been the most bearish of the brokers but have now become cautiously optimistic. The market is likely to climb a WALL OF WORRY, with bouts of volatility. We are happy for you to share our Not So Daily Bulletin with family and friends, and if we can help them, we are also happy to chat. February Market review The end-of-2023 rally has continued into February with strong gains across most major markets, with only the UK slightly in the red. The Chinese markets were up 8% as they finally bounced, with interest rate cuts and short-selling bans providing a boost. There is an increasing need for stimulus, especially in the property sector. This is having an impact on the commodity prices and the materials sector in Australia. Japan hit an ALL TIME HIGH (ATH), finally breaking the 1990 high (it only took 34 years). Other markets were buoyed by the US profit season and continued delivery from technology companies (exceeding expectations). This saw the Nasdaq up 6%, the S&P500 up 5%, Germany up 4.5% and the World 4% (MSCI). The ASX struggled to close in positive territory with a gain of just 0.23%. Over the last six months, Japan is up 20%, the US, Germany & the World are up by double-digit returns, while China (HK and Shanghai) are negative. A similar picture over 12 months with the upside gains even higher Japan up 42%, and Nasdaq up 40%. Nasdaq has remained the dominant player over the 5, 10, 15, and 20 years. The 15-year figure is interesting; February 2009 was the bottom of the market in the GFC. For those old enough to recall, the global financial system was at risk until all the global Central Banks agreed to back the system. It’s still the only time in history that the US, UK, Germany, France, Russia and China agreed on anything. Since then, the Nasdaq has increased by a staggering 1,067%.  Core Watchlist and ETF February review The February reporting season allowed investors to bid up or sell down stocks based on the last six months. CORE WATCHLIST Over the last month, from the CORE Watchlist of 30 ASX stocks we track, the best performers were NextDC (NXT), up 25% based on cloud computing and AI data storage needs. Goodman Group (GMG) was up 16% as they have also pivoted over a 1/3 of their business to data storage. While Wesfarmers (WES) was up 14%, the consumer was still buying from Bunnings and Kmart. Other notable gains are Westpac (WBC) up 9% & Coles (COL) up 6%. At the other end was Lend Lease (LLC), down 13% after downgrading property values and profit expectations—currently one of the favourite short stocks. Nine Entertainment (NEC) is down 13% on slower advertising and cost pressures. Channel Seven (SVW) was very similar, and South 32 (S32) was down 12% as soft commodity prices impacted the resources sector. Over the calendar year (2 months), the same stocks are the best, while BHP has replaced S32 in the three worst. Over the financial year (8 months), GMG was up 49%, JB HiFi (JBH) was up 40%, and NXT was up 40%. While S32 is down 21%, Resmed (RMD) is down 18% on the weight loss drug. It was down much further, but its profit result was much better than expected, and Orora (ORA) was down 18% after the market didn’t like its acquisition of a premium French bottle maker. EXCHANGE-TRADED FUNDS (ETF) The ETF performance was much better in February, with only a few negative returns. The best for the month were the Chinese funds IZZ, up 11%; CNEW, up 9.6%; and Korea (IKO), up 8%. Other notable mentions are Australian Mid Cap (MVE), up 7.6%, Emerging Markets (EMKT), up 6%, and FEMX, up 5.4%. Asia (IAA) is up 6.7%, Global Quality (QUAL) is up 5.8%, Global Quality Small (QSML) is up 5.8%, and Global Robotics and AI (RBTZ) is up 7.5%. The worst for the month is Australian Resources (MVR), down 1.6% and two fixed interest investments, Inflation-linked bonds (ILB), down 0.24% and Vanguard Aust Fixed Interest (VAF), down -0.18%. Over the calendar year (2 months). The best 3 are RBTZ, up 16%; QUAL, up 13.% and QSML, up 12.9%, while the worst was MVR and Global Infrastructure IFRA & MICH, down 2.5%. Over the financial year (8 months), The best 3 were Global Cybersecurity (HACK), up 30%; QUAL, up 20%; and QSML, up 19%. While the Chinese funds are still lagging, we may have seen the bottom with the bounce over the last month.  Market outlook Morgan Stanley (MS) updated their market commentary. Below is an edited summary Markets continued to rally in February with the S&P 500 now trading above 5000 points. • Earnings releases in the US have remained below recent trends. However, Nvidia Corp. (Nvidia) exceeding sales and upgrading guidance provides steady support for Artificial Intelligence (AI), technology and even global equities. • MS believe rate cuts, the AI ‘boom’ and a mild economic rebound in 2H24 will likely keep supporting stock markets this year. MS continues to focus on sectors and regions that offer secular tailwinds (AI, segments of Health Care, Japan) and earnings resilience (Quality and Defensives).That said, in the short term, MS believes markets could pause after strong rallies and the end of reporting season which usually happens as their are limited catalysts to drive the market higher. • The strength of US markets, and the weakness of Chinese equities have drawn flows into Australian equities as a local proxy of a regional higher-quality market. However, Australia faces a slowing economy and a still hawkish central bank. Current valuations are hard to justify, and MS doesn’t believe the slightly positive tone out of the earnings season will be enough to lift stocks higher in the absence of i) further strength in the US and/or ii) weaker data raising the odds of earlier cuts. • MS continue to monitor the key risks with regards to i) the geopolitical situation, ii) lagged impact of monetary tightening, iii) headwinds for the US consumer, and iv) US commercial property, but recent data flow has continued to validate the ‘soft landing’ narrative, which remains the base case. • Bonds continue to offer an attractive combination of yield, capital gains and downside protection potential. In addition to attractive income, yields will either come down moderately when central banks likely start to lower rates in less than 6 months, or significantly if the bear case (i.e. recession) materializes. • The economy remains in a late-cycle pattern and cannot completely dismiss recession risks, but MS acknowledge the signs of a ‘soft landing’ have increased noticeably. Financial Planning Snippets PLEASE BE VIGILANT regarding financial scamming. If anyone is requesting financial information from you (via phone, email, text, or social media), please contact us first. Super Guarantee (SGC) for employees increases to 11% from 1/7/23 Commonwealth Seniors Health Care card has seen the income limit increase to $152k(couple) $95.4k (single). If you are of Age Pension age and don’t have the card, please let us know. Account Based Pension minimum pension payments will revert back to normal from July 2023 (from half normal, which were put in place due to COVID in 2020). Amended Stage 3 tax cuts starting from 1 July 2024 after Coalition agrees to pass. Other Stories – MS sees the Australian dollar weaker throughout 2024. Low 60’s. – Chinese PMI readings were slightly better than expected for the Chinese economy. Manufacturing 50 and Services 51.4. A number above 50 means expanding and below means contracting. – US Federal Reserve’s preferred inflation gauge. PCE came in as expected overnight. Broker Target Price changes Ord Minnett/Morningstar suspending the Morningstar research. Morgans NextDC (NXT) increased from $14.50 (equal lowest broker) to $20 (equal highest broker) Woodside (WDS) decreased from $34.30 (highest broker) to $34.20 (still highest broker) Morgan Stanley Rio Tinto (RIO) decreased from $144.50 (highest broker) to $138 Sonic Health (SHL) decreased from $33.60 to $31.65 Macquarie NXT increased from $17 to $20 (equal highest broker) Bell Potter/Citigroup NXT increased from $15.45 to $19.75 UBS Coles (COL) increased from $16.25 (lowest broker) to $17 WDS decreased from $32.60 to $31 Tracking changes for 2024 Upgrades 93 Downgrades 81 Core Watchlist Index (changes since last Not So) The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE Macquarie price $176.95 Av. Target Price $205.96= 85.9% (meaning 14.1% upside over next 12 months) + income 4.35% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. We have removed Morningstar research from our calculations as Ord Minnett is in the process of changing to another research house. The Core index increased from 96.71% to 96.99% Overall Earnings Per Share (EPS) CY23 remained at 3.61% FY24 decreased from 1.61% to 1.44% Most expensive – CBA 127.8% Least expensive – Resmed (RMD) 80.9% The CORE Watchlist has 9 (9) stocks trading above 100%; they are; ALL ANZ CBA GMG JBH MQG NAB WBC WES, lowest number ever is 0, highest is 11. While 3 (3) are trading below 85% (highest 18), while the lowest is 3. LLC RMD S32 (Figures in brackets is last Not So). STOCKS TRADING BELOW ALL BROKER FORECASTS ARE AS FOLLOWS; (it has been a handy indicator in the past). 8 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest is 2. AMC current price $14.04 Broker range $14.50 to $15.65 CSL current price $282.35 Broker range $305 to $350 LLC current price $6.33 Broker range $6.90 to $8.50 RMD current price $26.72 Broker range $31.80 to $34 SEK current price $26.10 Broker range $27.30 to $29.20 S32 current price $3.02 Broker range $3.10 to $4 STO current price $7.20 Broker range $7.75 to $9.95 TLS current price $3.81 Broker range $4 to $4.50 Added Removed BHP ORA Banking Index (changes since last Not So) Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this indicates the Banks are fully priced. The Banking index increased from 117.8% to 118.8%. A new record high at 118.8%. The market is enjoying the banks but the analysts are struggling with some of the values. Macquarie Research said the values for the banks were pricing profit growth, where the expectations are for bank profits to fall or be flat for the next couple of years Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is slightly increased dividend payments and still attractive yields. PLUS FRANKING. FY 23 % FY 24 % FY 25 % ANZ 175.0 6.09% 160.8 5.59% 162.2 5.64% CBA 450.0 3.83% 459.7 3.92% 469.8 4.00% NAB 167.7 4.93% 165.2 4.85% 165.0 4.85% WBC 142.0 5.38% 144.3 5.47% 172.6 6.54% MQG 750.0 3.86% 608.6 3.13% 655.8 3.37% Dividend expectations have been cut for BHP and RIO. Yields are still expected to be very strong. The forecasts below are for the full year. I have added FY25. BHP and RIO results will see some changing forecasts with the likelihood of further reduction. FY23 cps % FY24 cps % FY25 cps % BHP 255.00 5.68% 234.50 5.22% 272.6 6.07% RIO 620.50 4.97% 774.67 6.20% 709.7 5.68% Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS). Other Indicators (changes since last Not So) US VIX (Fear) Index decreased from 13.43 to 13.40. The VIX is within the normal levels (10 to 17). Iron Ore decreased from $1117.40 to $116.70 ALL-TIME HIGH of $237.57. Av expected for 2024 is $112. Copper increased from $3.82 to $3.85. Expecting an increase over 2024. Gold increased from $2040 to $2053. Had a new record in December of $2152. Couldn’t hold it. AUD/USD decreased from 65.17c to 65.08c. Recent low point 62.9c. $A strengthened to 68c but has fallen back. Maybe low 70c in 2024 Asian markets – UP US 10 year Bonds decreased from 4.29% to 4.25%. recent high 5% (20/10 highest since 2006). The FED looks like it’s on HOLD. Expecting 2024 to finish 3ish US 30 year Bond decreased from 4.43% to 4.38%. Hit a 17-year high of 5.12%. The US 2 year rate has decreased from 4.69% to 4.63% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.35%. It was -0.40% but still inverted, historically suggesting a recession. Widest inverse gap is -1.3%. This is the most it has been inverted in 42 years. The gap is narrowing (higher for longer). German Bonds decreased from 2.47% to 2.42%. Hit 3% in October highest since 2008. Japanese Bonds increased from 0.699% to 0.716%. Highest in 10 years is 0.956%. Aussie Bonds 10 year Bonds decreased from 4.18% to 4.16%. Recent high 4.95% Other Aussie Bonds 1 year 3.98% 2 year 3.75% 4 year 3.74% 5 year 3.80% 15 year Bonds 4.37%. Oil prices decreased from $78.57 to $78.53. Tungsten – China remained at $305 to 315mtu. The European midpoint is $312.50. This week & next week Last “Not So” opened in 7 Aust states (excl NT), US 7 states (California, Massachusetts, South Carolina, Ohio, Colorado, New York and Washington DC) & Sweden. This week – West Wyalong, Ungarie, Condobolin & Tullamore, in office Thursday-Friday Next week – Brisbane – Monday-Wednesday Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
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