| The Not So DAILY BULLETIN 30 November 2021 No.442 Top Stories Tuesday, November 30, saw the market rebound 16 points to finish at 7256 or down 0.93% for November. It looked better through the day as the market hit a high of 7333, but the market was sold off late in the afternoon, with the banks, utilities and consumer staples dragging the market back. Late this afternoon, the Moderna CEO said the existing vaccines would be less effective against Omicron, which caused the US future to fall and may explain some of the late drop in our market. Additionally, fund managers had some end-of-month portfolio rebalancing and the sizeable transitional portfolio mentioned in the Bell Potter Coppo report. It looks like volatility will remain for a while until this variant is understood. We are still Optimistic, but volatility is likely to persist. Omicron? A new COVID variant has emerged from Southern Africa, where there are low vaccinations rates. Unfortunately, COVID will continue to be an issue until we get the WHOLE world vaccinated. Currently, there have been 7.94bn doses administered (more than any other vaccine in history) at a rate of 30m doses a day, which means 54.2% of the world’s population have had one dose, but only 5.8% of low-income countries have had one dose. So if we don’t help the rest, we are unlikely to reach the POST COVID world. China has just announced they are donating 1 billion doses to African countries. The West will need to do something similar or more significant to win the diplomatic war. The early reports about Omicron suggest it may be milder, and the vaccine makers (Pfizer, AstraZeneca, Moderna) can have a variation made within 100 days. Markets initially sold off on the new variant news but have calmed at the beginning of the week. It would also suggest that interest rates aren’t rising soon and probably more attuned with the Central Banks rather than the market, especially for the US Federal Reserve and the RBA (see table below). Morgan Stanley believes we are well into the middle of this current economic cycle; Nineteen months have passed since the end of the Covid-19 recession, the shortest US recession ever, which lasted just two months from February to April 2020. Moving forward, Morgan Stanley has six key views regarding the global outlook: 1) Inflation is transitory. 2) Global growth will remain above trend. 3) Central banks will raise interest rates much slower than current market pricing. 4) The new Covid variant Omicron, at least for now, is expected to have a limited impact on Morgan Stanley’s global growth forecasts. 5) Australia is doing well. 6) They continue to prefer Equities over Fixed Income. After markets closed – Moderna CEO said the vaccines are likely to be less effective against OMICRON. The DOW futures dropped.  When the FEAR index (VIX) jumps quickly Bell Potter’s Coppo report yesterday provided some interesting data. It showed that when the VIX index (fear gauge) spikes more than 40% in one day as it did on Friday, the US markets tend to be higher in the coming months. As shown in the table below, the last 19 times it has occurred (since 1990), the S&P 500 has been higher (on average) by … – 1 week later +0.67% – 1 month later +0.16% – 3 month later +4.71% – 6 month later +10.86% – 9 month later +16.25% – 1 year later +20.22% In fact, over the nine months, it’s been higher EVERY TIME. The one year is also looking good, but it’s waiting on the 27/1/22 to confirm the trend, but it’s well on track at this stage. This would suggest this is a good entry point, especially with the potential of a Santa Rally in December.  November review CORE and ETF’s The ASX 200 finished November lower by 0.93%, which is similar to most markets around the world (assuming a reasonably flat finish for Europe and the US tonight). Overall the CORE Watchlist outperformed the ASX this month by 1.39%. The figures below do not include income. The best-performing stocks in the CORE Watchlist this month were Goodman Group up 12.74% (Industrial warehouses), Crown 10.84% (new takeover offer) and BHP 7.64% (recovery from last month). While the domestic banks of WBC -20% and CBA -10.49% dragged the market down. Over the calendar year (11 months) and financial year (5 months), Macquarie continued to perform over both periods while Telstra has been a surprise up 36% this year. On the flip side, AMP, Lend Lease, Iron ore producers and Domestic banks have lagged. The stable of Exchange Traded Funds has seen mixed results. One of the significant moves was the AUD versus the USD, which saw it fall 5% for the month from 75c to 71c. This will assist the unhedged International options and our exporters. The month best was China New Economic (CNEW), up 14.5% as the domestic consumer strengthens in China and the health and technology sectors improve. The Nasdaq (NDQ) continues to deliver overall periods with a gain of 10.78% for the month and one of my favourites, Global Quality (QUAL), up 7.95%. While the Banks ETF (MVB) was down 7%. Over the calendar year and financial year. The US markets have performed the best along with Spheria (SEC), a specialised smaller companies fund up 34.73%. The global investment themes continue to perform with Cybersecurity (HACK) up 14% for the five months. On the flip side, we see a common theme of weakness in Asian markets, partly due to China’s slowdown and supply chain issues.  Other Stories – Macquarie Group (MQG) finalised their share purchase plan by ACCEPTING ALL APPLICATIONS. A total of $1.3bn at a price of $191.28. The new shares start trading on 6 December. MQG closed today at $196.74. – Australia’s current account hit another record surplus in October of $23.9bn. Exports increased $8.6bn while Imports only increased $1.6bn. This was driven by high coal and LNG prices as well as increased farming output. – China PMI (Purchasing Managers Index) figures were released today at 52.2 up from 50.8 (over 50 and the economy is expanding). This was higher than expected. China seems to be recovering from a soft lockdown patch. – Walmart CEO told a video conference with President Biden that they had seen container improvement of 26% in the last 6 weeks and the two LA ports had improved by 51% since they went 24/7. This suggests the supply chain issues may be easing. – Brazilian Iron Ore producer Vale downgraded supply expectations which have provided support to BHP and RIO. Broker Target Price changes Goldman Sachs Ord Minnett/JP Morgan Morgans Rio Tinto (RIO decreased from $112 to $104 Morgan Stanley Macquarie Bell Potter/Citigroup Today’s Sector Movements Best – Communications +1.8% Worst – Utilities -1.2% Core Watchlist Index 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 BHP price $38.56 Av. Target Price $39.73= 97.1% (meaning 2.9% upside over next 12 months) + income 7.11% (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 91.27% to 91.11%. Brokers are continuing to raise their target prices. Overall Earnings Per Share (EPS) FY21 remained at 31.57% FY22 increased from 8.41% to 8.42% Most expensive – Computershare at 107.3% Least expensive – Westpac is now the cheapest at 76.9% The CORE Watchlist is still mixed with 6 (7) stocks trading above 100% while 8 (8) are trading below 85% (AMP BHP BXB LLC NXT RIO WBC WPL). (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). 13 out of the 30 CORE stocks are trading below the lowest broker target price. Good value to be found. AMC current price $16.22 Broker range $17.50 to $20 AMP current price $1.03 Broker range $1.12 to $1.25 ANZ current price $26.70 Broker range $28.30 to $31.82 BHP current price $39.37 Broker range $46.05 to $54 BXB current price $10.01 Broker range $11.04 to $13.84 LLC current price $10.68 Broker range $11.40 to $16.52 NEC current price $2.94 Broker range $3 to $3.75 NXT current price $12.10 Broker range $14 to $16.10 ORG current price $4.80 Broker range $5.25 to $6.10 RIO current price $93.50 Broker range $101 to $133 TLS current price $4.07 Broker range $4.40 to $4.60 WBC current price $20.52 Broker range $24.50 to $30 WPL current price $21.43 Broker range $22.82 to $33.50 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 is indicating the Banks are fully priced. The Banking Index decreased from 91.7% to 90.1%. The new variant and the transitional portfolio switch may delay the bank rally, but value starting to appear at these levels for those underweight the banks. Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is for increased dividend payments and still very attractive yields. PLUS FRANKING. CBA’s dividend has been reduced. FY20 % FY21 % FY 22 % FY 23 % ANZ 60.0 2.25% 142.0 5.32% 146.5 5.49% 154.3 5.78% CBA 298.0 3.20% 350.0 3.76% 382.3 4.10% 401.5 4.31% NAB 60.0 2.20% 127.0 4.65% 138.3 5.07% 146.8 5.38% WBC 31.0 1.51% 117.7 5.73% 120.8 5.89% 132.0 6.43% MQG 430.0 2.19% 470.0 2.39% 568.4 2.89% 566.2 2.88% Both BHP & RIO’s share price has rallied over the last week. FY21 cps % FY22 cps % FY23 cps % BHP 401.00 10.19% 364.80 9.27% 296.67 7.54% RIO 1400.33 14.98% 941.00 10.06% 788.83 8.44% Please note RIO is Calendar Year (CY). Cents per share (CPS) Plus franking. Other Indicators – US VIX Index increased from 18.58 to 22.76. It did spike above 28 on Friday. Normal range of 10-17. – Iron Ore increased from $102.35 to $103.27. The lowest point for 18 months was $88. Brokers expect an average in 2022 of $106. ALL-TIME HIGH of $237.57. – Copper decreased from $4.39 to $4.34. Reduced from ALL-TIME HIGH of $4.90 – Gold decreased from $1798 to $1790. Record high $2063. – AUD/USD increased from 71.39 to 71.42. – USD/CNY decreased from $6.39 to $6.37. Strongest in 3 years at $6.37. – Asian markets – UP – US 10 year Bonds decreased from 1.56% to 1.50%. Bond yields jumped on inflation. The lowest point in a number of months was 1.12% but has rebounded. The recent high of 1.79% The US 30 year Bond decreased from 1.89% to 1.85%. The highest level was 2.47% for 18 months. – German Bonds remained at -0.31%. Hit a low of -0.9%. The highest for some time is -0.088%. The negative European rates are likely to be a headwind for higher US rates. – Japanese Bonds increased from 0.065% to 0.069% – Aussie Bonds 10 year Bonds decreased from 1.79% to 1.72%. Lowest point 0.68% Recent high is 2.10% – Other rates 1 year 0.22% 2 year 0.36% 4 year 1.27% 5 year 1.33%. 15 year Bonds 2.12%. Aussie rates moved lower today. – Oil prices decreased from $76.17 to $70.61. Oil fell 13% last Friday. Regained half this week. – Tungsten – China remained at $313mtu. Europe remained at $325 mtu. This week & next week Last “Not So” opened in 6 Aust states (excl NT & Tas) & US 3 states (California Massachusetts & South Carolina). This week – November reviews. Next week – software data transfer 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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