| Top Stories Happy Easter Thursday, 28 March 2024, the ASX gained 77 points to finish at 7897, a new ALL TIME HIGH (ATH). It hit a new INTRADAY ATH of 7901.2 during the day. The market was driven higher by resources that had been absent in the ATH set earlier in the month. The Aussie market is picking up the global sentiment, which is seeing ATH monthly closing highs in Europe, US and Japan. This week is the big dividend week, with over $19bn hitting the bank & super accounts. China finally dropped the Wine tariff, which was removed on Thursday. This should benefit Treasury Wines (TWE) and Orora (ORA) makers of wine bottles. Happy Easter!! 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. March market review Markets continued to move higher as most hit ALL TIME HIGHS (ATH) and confirmed a new BULL MARKET as they are 20%+ higher from the lows last September. The best markets over the month were Europe, Germany up 4.6%, the UK up 4.2%, and France up 3.5%. The US S&P500 was up 3%, along with the World Index (MSCI) up 3%. The ASX 200 was up 2.5%, along with Japan, which broke its 34-year record at 40,000. China, again, was the only market not to see new ATH during the month and struggled to hold last month’s bounce. Over the last six months, most markets have bounced off the lowest established last September with gains of 15% plus. Japan is leading the way up 26%. China was negative over the period as investors were focused on the debt-laden property sector and ongoing trade wars. The ASX gained 12%. Over the last year, a similar pattern to the 6-month figures as the risk of inflation and higher interest rates has been offset by continued demand for skills and workers and the continued development of Artificial Intelligence. Japan is up 43%, the Nasdaq is up 34% & World Index (MSCI) is up 23%. ASX up 10%. The best performer over 5, 10, 15 & 20 years is still the NASDAQ. The 15-year figure is up by a staggering 971%, which happens to be from March 2009. This was the bottom of the Global Financial Crisis (GFC). It reinforces the view that the best time to invest is when everything looks the darkest.  March review for CORE and ETFs As noted above. Markets have continued to move higher, but it isn’t a case of all boats rising with the tide. Some sectors haven’t benefited from the new bull market yet; however, there have been signs in recent days that this might be broadening out (ie commodities). CORE WATCHLIST (30 stocks) The best performers for the month were Resmed (RMD), up 13% (rebounding after a sell-off last year). Goodman Group (GMG) up 13% (continuing to move higher on data centres and AI). It’s now the 12th biggest company on the ASX, and Santos (STO) is up 9% on a better oil & gas price outlook. The worst for the month were Aristocrat Leisure’s (ALL) – competition in gaming, Seek (SEK) ‘s strong recent run, and Transurban’s (TCL) interest rate, which is likely to be cut later in the year. Over the quarter, GMG, up 33% and NextDC (NXT), up 30%, continued the strong data centre growth, and they happen to be the best of the group over the calendar year (nine months). The laggards over the quarter are Nine Entertainment (NEC), falling ad revenue, Lend Lease (LLC), still waiting for profit delivery & BHP, and commodity price drop. Over the financial year (nine months), South 32 (S32) has been impacted by falling commodity prices, Orora’s (ORA) Chinese wine ban and negative response to the takeover of French bottle maker and Sonic Health (SHL) reduced income after COVID-19. EXCHANGE-TRADED FUNDS (ETF) The best ETF for the month was Vanguard Aust Property (VAP), which was up 9.8%, mainly driven by Goodman, the biggest property trust. Global Semiconductors – SEMI (computer chips) is up 6.3%, the biggest holding is NVIDIA. and Global Quality Small Companies (QSML) is up 5.8%. The laggards for the month – Cybersecurity (HACK) is down 2.1% after a recent strong run. Aust Fixed Interest (XARO) and Cloud Computing (CLDD) after a recent strong run. Over the quarter, the best has been SEMI, up 31%; QSML, up 19%; and Global Robotics & AI (RBTZ), up 19%, while the worst for the quarter was Aust Resources (MVR), down 4.6% and Magellan Infrastructure (MICH) down 1%. Over the financial year (9 months), the best was SEMI, up 45%, VAP, up 26% and HACK, 26%. The worst were the Chinese ETFs IZZ -9%, CNEW -7%, and Aust Resources (MVR) -5%.  Global Financial Crisis We are now 15 years from the bottom of the GFC in March 2009. It’s all good now, but that wasn’t the case then. As I mentioned, it’s probably the only time in history when the US, UK, Germany, France, China and Russia agreed on anything. They agreed to back the global financial system with a series of bail-outs (too big to fail). Some were heavily criticised, such as the Troubled Asset Relief Program (TARP) and rescue of mortgage providers Fannie Mae and Freddie Mac (FMFM), as a waste of taxpayers money. The result was the opposite: the US Government made a profit and protected millions of jobs. TARP cost $700 billion and made a profit for the US Government of $15bn. FMFM cost $187 billion, but the US Government was in front by $58 billion by 2019. Why did CBA hit $120? For months, CBA has been the most expensive stock on the Core Watchlist by some margin. The average target price is $93 with the highest broker at $105. It closed above $120 at the end of the month. The following article (edited) from the Australian Financial Review provides some insight. Like most things in Australian banking, the torchbearer for share prices is the Commonwealth Bank of Australia (CBA). Its shares have shot to record highs this year, seemingly defying gravity at times, to trade at three-times book value or 20.4-times forecast earnings per share on S&P Global Markets Research numbers. Up at $120, its usually rich premium is at new heights. Why? “It’s just the best bank,” veteran banking analyst Brian Johnson, now working for boutique firm MST Financial, says. You will not hear Johnson recommending clients buy CBA shares – he was surprised by the run, like all of his peers. But his explanation of how CBA shares got to $120 was worth noting. Like most things in markets, it is all about demand and supply. Johnson says you have to go back to October last year, when institutional investors wanted as few Australian bank shares as they could get. Credit growth was slowing, net interest margins were falling and banks were signing off on 5 per cent a year pay rises that would increase their already hefty labour costs. Institutional investors were positioned rationally. Funds had either sold Australian bank shares to underweight positions, or were short-selling shares to try to make money from their expected fall. CBA shares finished October at $96.56. In November, the US Federal Reserve pivoted to a pretty clear signal it would cut interest rates. The Australian dollar jumped against the United States dollar, which made those underweight positions held by global funds even bigger. At the same time, a change in the interest rate outlook meant global funds underweight the banks on fears about Australian house prices had to rethink their calls. So global funds started buying with their ears pinned back – both to keep up with the Australian dollar and to ease off bets against the housing market. That created a squeeze in CBA shares, making it a risky bet for short-sellers and sent them scrambling to cover positions. By then, it was December, bank shares were running and domestic and offshore long-only fund managers were worried about their December 31 unit pricing dates. So they also buy bank shares in a bid to protect those December 31 numbers. It was classic FEAR OF MISSING OUT (FOMO). Meanwhile, growing fears about the Chinese economy early this year had big investors with Asia mandates rethink their broader Asia exposure and had them looking for markets outside of China. Where did they head? India and Australia – and when coming to Australia, they bought the big banks. Who was selling? Not many people. CBA’s sticky share register, plenty of who are retail shareholders that have owned the company since its early days on the ASX, are unwilling to trigger a capital gains tax bill and continue to hold. Add all that together – all things that are hard to predict when you’re a sell-side analyst of a fund manager thinking about the fundamentals – and you get an unexpected run to $120 a share. CBA’s highest close was $121.45 on March 8. “CommBank has always been expensive – best management, generates the most capital and no one owns it which means you perpetually get in these periods where people have to buy it and get squeezed up,” he says. Analysts, like Johnson, have had to decide whether to double down on their CBA calls. “If you think about every single one of those drivers, has anything changed?” Johnson asks. “The credit growth outlook is still slow, we still see outrageous competition coming through on both sides [mortgages and deposits]. Not much has really changed except the share prices are a lot higher.” Commodities Morgans have updated their view on commodities. ▪ Oil and copper are our top picks. Fundamentals in both the oil and copper markets look set to continue to benefit from decades of underinvestment. Both markets have seen deterioration in supply from aging production, and a lack of new supply sources or investment significant enough to satisfy future demand. ▪ Iron ore healthy – for now. Iron ore and nickel are two completely different markets, but iron ore could soon face a similar supply dynamic with large cheap high-quality new supply on the horizon at Simandou. Simandou’s initial production of +150mtpa will be enough to remove the majority of high-cost supply we see sitting with cost bases in the range of US$80-$100/t, which would trigger an aggressive flattening of the cost curve and likely iron ore prices with it. ▪ Gold sector vs gold price. The Australian equity market is largely ignoring the fact that gold prices have pushed to all-time highs, although this might not be the case for long. We see real potential for a ‘catch up’ rally across the gold sector if miners can avoid any operational issues in next month’s quarterlies. Weakening USD would support commodities ▪ In the short term global commodity investors continue to focus on the strained prospects for global/China growth as the key driver for investor demand for commodities, but we believe the potential support from a weakening US dollar could be powerful and should not be overlooked – especially as US inflation shows signs of stabilising and the Fed considers its monetary policy settings. Implications for the Australian economy from commodity swings ▪ Australia’s economy continues to be uniquely pressurised by energy inflation, while the rest of the world has been enjoying material energy deflation. The result of state and federal policies is encouraging an aggressive energy transition. ▪ We see the energy problem as likely to expand on the east coast in coming years, which painfully could unfold at the same time we expect prices of Australia’s three largest exports (coal, iron ore and LNG) to moderate back toward long-term averages. ▪ This presents some challenges for Australia’s economy, which has benefitted from high commodity prices in its key markets over the last ~eight years. The global picture looks much healthier ▪ We expect China’s property market to remain depressed in 2024, although infrastructure and manufacturing could prove positive on growth. We also see an increased likelihood of a return to growth from advanced Western economies. This presents a more balanced outlook for global growth, which we expect will see commodities remain in healthy ranges through the year. ▪ Our top preferences across diversified mining and oil & gas are Woodside (WDS) and South 32 (S32), while we also upgrade BHP and Beach Energy (BPT) ▪ Our order of preference between the three big iron ore producers remains BHP, RIO and FMG. 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 or ask them for their ABN. Super Guarantee (SGC) for employees increases to 11.5% from 1/7/24 Concessional super contributions increases from $27.5k to $30k from 1/7/24 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 normal from July 2023. Amended Stage 3 tax cuts starting from 1 July 2024. Other Stories – Chinese factory data better than expected. – Broker Target Price changes Ord Minnett/Morningstar suspending the Morningstar research. Morgans Rio Tinto (RIO) increased from $127 to $128 South 32 (S32) increased from $4 (highest broker) to $4.10 (still highest broker) Santos (STO) increased from $7.90 to $8.10 Woodside (WDS) increased from $34.20 (highest broker) to $36.20 (still highest broker) Morgan Stanley BHP increased from $44.50 to $47 Macquarie Group (MQG) increased from $202 (highest broker) to $225 (still highest broker) Rio Tinto (RIO) increased from $138 (highest broker) to $140 (still highest broker) South 32 (S32) decreased from $3.60 to $3.35 (lowest broker) Macquarie Bell Potter/Citigroup UBS Tracking changes for 2024 Upgrades 122 Downgrades 88 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 96.40% to 97.43% (near recent high). Overall Earnings Per Share (EPS) FY24 decreased from 1.32% to 1.06% FY25 increased from 8.67% to 9.27% Most expensive – CBA 129% Least expensive – South 32 (S32) 80.2% The CORE Watchlist has 9 (8) stocks trading above 100%; they are; ANZ BXB CBA GMG JBH MQG NAB WBC WES, lowest number ever is 0, highest is 11. While 1 (1) is trading below 85% (highest 18), the lowest is 1. 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). 10 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest is 2. ALL current price $43 Broker range $44.20 to $52.70 AMC current price $14.44 Broker range $14.50 to $15.65 CSL current price $287.92 Broker range $305 to $350 LLC current price $6.43 Broker range $6.90 to $8.03 NXT current price $17.79 Broker range $19.75 to $20.10 RIO current price $121.76 Broker range $125 to $140 RMD current price $30.15 Broker range $31.80 to $34 SEK current price $25.05 Broker range $27.30 to $29.20 S32 current price $3.00 Broker range $3.50 to $4 TLS current price $3.86 Broker range $4 to $4.50 Added Removed ORA STO 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 115.8% to 116.1%. 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 5.95% 160.8 5.47% 162.2 5.52% CBA 450.0 3.74% 459.7 3.82% 469.8 3.90% NAB 167.7 4.84% 165.2 4.77% 165.0 4.76% WBC 142.0 5.44% 144.3 5.53% 172.6 6.61% MQG 750.0 3.76% 601.6 3.01% 656.8 3.29% Dividend expectations for BHP and RIO. The forecasts below are for the full year. FY23 cps % FY24 cps % FY25 cps % BHP 255.00 5.76% 234.17 5.29% 276.8 6.25% RIO 620.50 5.10% 771.00 6.33% 701.2 5.76% 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 13.67 to 13.01. The VIX is within the normal levels (10 to 17). Iron Ore decreased from $108.05 to $96.70. Dropped below $100 again. Av expected for 2024 is $112. Copper increased from $4.02 to $4.04. Expecting an increase over 2024. Highest in 11 months Gold increased from $2166 to $2281. New ATH $2,286.40. AUD/USD decreased from 65.19c to 65.17c. Recent low point 62.9c. Maybe low 70c in 2024 Asian markets – UP US 10 year Bonds decreased from 4.21% to 4.19%. 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 4.39% to 4.35%. Hit a 17-year high of 5.12%. The US 2 year rate has decreased from 4.73% to 4.60% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.41%. It was -0.39% 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 2.33% to 2.29%. Hit 3% in October highest since 2008. Japanese Bonds increased from 0.732% to 0.739%. Highest in 10 years is 0.956%. But will the negative rate policy finish tomorrow? Aussie Bonds 10 year Bonds decreased from 4.02% to 4%. Recent high 4.95% Other Aussie Bonds 1 year 3.98% 2 year 3.67% 4 year 3.61% 5 year 3.66% 15 year Bonds 4.19%. Oil prices increased from $80.92 to $83.48 Tungsten – China remained at $305 to 315mtu. The European increased range from $302-$325 to $305-$327. This week & next week Last “Not So” opened in 7 Aust states (excl NT), US 5 states (California, Massachusetts, New York, Connecticut & South Carolina) Sweden UK & Israel. This week – March reviews Next week – March reviews 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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