The Not So DAILY BULLETIN 19 September 2023 No.584

The Not So DAILY BULLETIN 19 September 2023  No.584
Top Stories
Tuesday,  19 September 2023, the ASX 200 dropped 34 points to finish at 7197. After finishing last week on a high, the first two days have dropped 83 points. 

As noted in a paragraph below, we are in the worst month of the year, and this week has been some of the weakest days over the last 20 years. 

Markets are focussed on a raft of Central Bank meetings with the US Federal Reserve, the main one on Thursday. The expectation is for a HOLD, but the commentary about the outlook will guide market sentiment. Other banks meeting include the Bank of England (BOE), Swiss National Bank (SNB), Bank of Japan (BOJ), Sweden’s Riksbank (SEK) and Norway’s Norges Bank (NOR). Rate hikes expected from BoE, SEK and NOR. 

In particular, market watchers will be looking for signs that rates have finished increasing as this was the takeaway message from the European Central Bank (ECB) last Thursday, hence the rally on Friday. 

Another interesting piece below is the observation that under-investment in commodities might lead to a new commodities BULL market.  
El Nino has finally been called today, so the season is warming and changing. The ASX is still trading within the 7000 to 7500 trading range. Will it break out, or will the rollercoaster continue?  

September is the weakest month.
Historically, September is not a great month for markets. The chart below from Bell Potter’s Coppo shows the average movement over 20 years for the US S&P 500.
This week (4-5 days) has been statistically the weakest group of days for the year over the 20 years. Why is that?

It is a combination of factors over time. Still, it is the period just after reporting season, and many stocks are trading without their dividend, but investors haven’t received their money. It’s also towards the end of the 3rd quarter of the year when some pension/mutual funds are tidying up their books. Also, there is a change of season, and then it is just September, which starts to build a reputation for weakness. 

The 2nd chart below shows the average return for the different months over the last 20 years. While the average is a nice 0.47% per month or 5.64% plus income, September is the worst by some distance. 

However, we could look at this another way. The time to buy is when the market is unloved and down, and as can be seen in the chart, the next three months have been solid as the Santa Claus rally gets going in late October and November.  

So our old mantra still applies (BUY THE DIP). 
Commodity underinvestment – a new bull market?
Callum Thomas from Topdown Charts has provided an interesting observation regarding capital expenditure in commodities.
The chart below shows a significant under-investment (compared to the long-term average) in new commodity supply since the commodity bear market of 2015-16. But another way of looking at it, is a decade-long bear market in commodities from the peak in 2011 to the trough in 2020.

New supply has struggled in many sectors for various reasons, including regulatory changes and investor sentiment through climate change. The underlying demand for most commodities only continues to grow. At some point, the increased demand and limited supply due to low capital expenditure only has one implication. HIGHER PRICES. Thomas believes we may have seen commodities hit a price floor, and we may be building towards a new cyclical bull market in commodities as the highly forecast recession fails to materialise and demand increases.
Smart Beta ETFs Number 2 – we like them! 
Smart Beta combines the best of active and passive investing: having the potential for better investment outcomes while being rules-based, transparent and cost-efficient.

In our portfolio construction, we use several smart beta ETFs that have delivered results over the short, medium and long term. 

The second one in the series is the VanEck MSCI International Quality (QUAL) or (QHAL) – hedged version.

This fund gives access to the world’s highest-quality companies based on key fundamentals (filters).
(i) high return on equity (ROE),
(ii) earnings (profit growth) stability and
(iii) low financial leverage 

Morgan Stanley Capital Index (MSCI), the world’s largest index provider and the creator of the first international index, states, “Quality growth companies tend to have high return of equity (ROE), stable earnings that are uncorrelated with the broad business cycle and strong balance sheets with low financial leverage. Many active strategies emphasise Quality growth as an important factor in their security selection and portfolio construction.”

The top holdings are Apple, Nvidia, Microsoft, Meta, Eli Lilly, Visa Alphabet (Google), Visa Novo Nordisk United Health Group and Mastercard. 
The stock selection process starts with the top 1500 stocks in the world by market value. This is the MSCI index. The algorithm then applies the three filters above to reduce the stocks in QUAL to 300.

To illustrate
QUAL – return on equity is 35.96% on Price/Earning ratio of 24.7, whereas the MSCI World index of 1500 has a ROE of 21.10% on a PE of 18.7.

To compare, the ASX 200 ROE is 15.83%.    

These stocks are re-assessed every six months to ensure they continue delivering and providing solid returns. 

The table below shows the return over various time frames compared to the index. QUAL has beaten the index (MSCI) over every period apart from the 1-month result, and the returns are well above the ASX over the past five years. 

I have kept in the MVW from the last Not So. 
Orora (ORA) acquisition and capital raising 

Existing shareholders only
Orora (ORA) has acquired global premium glass maker Saverglass (France) for $2.1bn. They make high-end wine and spirit bottles for brands including Glenfiddich, Don Julio, Jose Cuervo, Grey Goose and Hennessy.

Existing shareholders can purchase one new share for every 2.55 existing shares for $2.70. The shares have started trading again and have fallen to near the issue price. Closed at $2.75.

The offer opens 12/9 and closes 25/9. Paperwork should be received next week. We will provide more information when we receive it from the brokers.  
Macquarie Bank Accounts 

Macquarie has advised they are making the following changes to the usage of their accounts.  
From January 2024 You won’t be able to:
– order a cheque book for a new cash management account.
From March 2024 You won’t be able to:
– make a payment using our automated telephone banking service.
From May 2024 You won’t be able to:
– deposit or withdraw cash or cheques over the counter at Macquarie branches
– order a cheque book on an existing account.

Clients can continue to withdraw cash from their transaction account via ATMs across Australia and overseas without fees. However, cash deposits and branch withdrawals will no longer be available.

From November 2024 You won’t be able to:
– write cheques or request bank cheques
– deposit or withdraw cash or cheques over the counter at NAB branches
– make a super contribution or payment via cheque.

Provincial Wealth summary
In our reviews, we will be discussing with your usage of the account and whether these will have any impacts and if required, provide guidance on work around. 
Financial Planning Snippets
– Super Guarantee (SGC) for employees increases to 11% from 1/7/23
– Commonwealth Seniors Health Care card has seen the income limit increase to $144k(couple) $90k (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). 
Other Stories 
– Spheria Emerging Companies (SEC) NTA $2.15 ($2.12) as at 15/9/23. Share Price $1.90 ($1.90). That’s a 11.6% (11.4%) discount. (brackets previous number). Gross yield 7.96% paid quarterly.  
– Japan’s stockmarket hit 30 year high yesterday.
– NSW Govt budget. Hitting property investors.
– BHP warns the Federal government’s new “same work, same pay” legislation could cost $1.3bn, which will mean less company profits, corporate taxes and impact dividends.  
Broker Target Price changes – 
Ord Minnett


Morgan Stanley


Bell Potter/Citigroup


Tracking changes for 2023
Upgrades 263
Downgrades 256

(we have noticed the overall trend is down but the CORE stocks are seeing upgrades. It probably reflects the quality stocks in our 30 CORE stocks).
Today’s ASX sector Movements
Best – Energy +0.2%         
Worst Materials -0.8%
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.  

The Core index decreased from 91.73% to 90.85%. 

Overall Earnings Per Share (EPS) 

FY23 decreased from 2.93% to 2.90% (new low)   
FY24 increased from 6.61% to 6.7%   

Most expensive – CBA 112.1%            
Least expensive –  Lend Lease 57.4%  

The CORE Watchlist has 7 (8) stocks trading above 100%; they are; BHP CBA JBH NAB RIO WDS WES, lowest number ever is 0, highest 9. While 9 (7) are trading below 85% (highest 18), while the lowest is 5. CSL LLC NEC NXT ORA RMD S32 SEK STO (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). 11 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest for some time 5.

ALL current price $41.04    Broker range $42.80 to $46.50
CSL current price $263.60  Broker range $325 to $340
LLC current price $7.31      Broker range $8.03 to $14.45
MQG current price $172.92 Broker range $175 to $209
ORA current price $2.75     Broker range $3.00 to $4.10
ORI current price $15.88     Broker range $16.50 to $20.30
RMD current price $22.72   Broker range $27.70 to $39
S32 current price $3.40       Broker range $3.60 to $5.15
SHL current price $30.45    Broker range $32 to $38
STO current price $7.85      Broker range $8.10 to $12.30
TLS current price $3.87      Broker range $4.20 to $4.75


Banking Index 
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 decreased from 103.2% to 102.3%. Still fully priced! 

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 very attractive yields. PLUS FRANKING.  

FY 23 % FY 24 % FY 25
ANZ 162.5 6.37% 163.0 6.39% 163.0 6.39%
CBA 450.0 4.41% 457.7 4.48% 469.5 4.60%
NAB 167.3 5.70% 167.5 5.70% 168.0 5.72%
WBC 140.0 6.45% 141.0 6.50% 142.8 6.58%
MQG  750.0 4.34% 677.0 3.92% 719.2 4.16%  
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 258.00 5.72% 226.33 5.02% 213.6 4.74%
RIO 569.17 4.80% 651.00 5.49% 547.8 4.62%
Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS).
Other Indicators (changes since last Not So)
US VIX Index increased from 12.82 to 14. Bounced off 52 week low. Markets are pretty calm.  
Iron Ore increased from $121.60 to $121.75. Highest level in months.  ALL-TIME HIGH of $237.57.  Av expected for 2023  is $113, while dropping to $94 for 2024.
Copper decreased from $3.84 to $3.77. 
Gold increased from $1941 to $1952.  Record high $2063. 
AUD/USD decreased from 64.67c to 64.32c. Has the AUD bottomed, mid 63.5c?     
USD/CNY increased from $7.27 to $7.30  Lowest $6.31 Highest in recent years $7.35. 
Asian markets – DOWN   
US 10 year Bonds increased from 4.29% to 4.32%, hit 4.35% (13 year high) Rate moving higher on the issuance of BONDS. US 30 year Bond increased from 4.38% to 4.40% The highest level was 4.47%. US Federal Reserve raised rates to 5.5% but maybe on hold in September. The US 2 year rate has increased from 5.02% to 5.06%  (5.37%, highest since 2006).  The gap between the 2 yr and 10 years an inverse -0.77%. It was -0.73% but still inverted, which historically has suggested a recession. Widest inverse gap is -1.3%. This is the most it has been inverted in 42 years. 
German Bonds increased from 2.61% to 2.71%. 2.94% highest since 2008 as the ECB increased rates last week.
Japanese Bonds increased from 0.712% to 0.72.1%   highest in 10 years.  
Aussie Bonds 10 year Bonds increased from 4.11% to 4.18%.  Recent high 4.32% 
Other Aussie Bonds 1 year 4.10%  2 year 3.92% 4 year 3.91% 5 year 3.94% 15 year Bonds 4.42%. Rates flattening. Given the cash rate is 4.10%, there is not a lot of suggestion that rates are falling over the next couple of years.    
Oil prices increased from $90.84 to $92.86. Will the rally in oil put pressure on inflation again? 
Tungsten – China remained at $305 to $315mtu. 
Contact details 
PO BOX 149 Deniliquin NSW 2710
125 End St Deniliquin NSW 2710
Ph. 03 58950100
Fax 03 58950101
Mobile 0412113524

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