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Friday, February 5, the ASX finished up 75 points at 6841. This is a gain of 234 points for the week and a strong rebound from the light sell-off in the last week in January.
This is the highest point since the pandemic and sets up an interesting month as companies start to report the last six months profits results with CBA the big one on Wednesday. The brokers have CBA’s target price 15% below the current price; they expect a poor result. We will see who wins.
The US profit season has been OK and expects a reasonable sized COVID package with president Biden having the majority in the Senate.
This week also sees the 2nd impeachment Senate trial of former President Trump. It’s likely to be a side-show for markets but a circus for the TV.
Investment Committee meeting
The Provincial Wealth investment committee meets tomorrow (Monday, Feb 8) with Brad Matthews (independent investment consultant and sounding board) who’s making the trek from Sydney (non-COVID area) to Deniliquin. I will report the outcomes and observations from the meeting over the next couple bulletins.
January 2021 review
Most of January continued the rally from last year with all markets up strongly. Still, in the last week, a couple of factors appeared to create some market volatility – COVID, online punters with Gamestop and mixed economic data. This saw some markets finishing in the red for the month.
HK was the best performer as the Chinese economy was the only major economy that actually grew in 2020. While the US & German markets reached new ALL TIMES during the month, they finished in the red. The perennial performer NASDAQ was again up with a gain of 1.42%. That makes it 21% for the last 6 months and a staggering 42% for the year.
However, this isn’t a one-off as the NASDAQ continues to be the best performer over the last 5 10 and 15 years. While it’s dividends aren’t the same as the ASX, the capital growth more than offsets this. Over the last 5 years the NASDAQ is 150% in front of the ASX, 10 years it’s 340% better off and 430% over the last 15 years. It would seem that investment decisions shouldn’t always focus on the income and franking credits. January – CORE Watchlist and ETF’s
The performance of those investments we watch closely were again mixed. Below are the best and worst for the month and the financial year to date (7 months). These exclude dividends.
CORE 1mth Jan-21 FY (7mth)
Market 0.31% 12.02%
Westpac (WBC) 9.09% Nine Entertainment (NEC) 74.64%
Wesfarmers (WES) 8.35% National Aust Bank (NAB) 29.20% Woodside (WPL) 7.61% Seek.com (SEK) 28.14%
Lend Lease (LLC) -8.32% AMP -19.95% Orora (ORA) -7.04% Origin Energy (ORG) -18.84% Goodman Group (GMG) -6.50% Orica (ORI) -8.29%
ETF’s 1mth FY (7 mths)
Asia (IAA) 8.76% Spheria Small Co (SEC) 49.61% China (IZZ) 6.65% Korea (IKO) 37.42%
Emerging Markets (EMKT) 6.09% Asia (IAA) 29.98%
Aust Property (MVA) -6.89% Magellan Infrast (MICH) -3.89% Vanguard Property (VAP) -5.66% China New (CNEW) 1.13% Aust resources (MVR) -4.88% Global Health (IXJ) 1.25%
David v Goliath
From the last couple of Not So’s, we referred to the hottest story in financial markets. The collaboration of small investors (David’s) on investment forums (Reddit/ Robinhood) taking on the Wall St Hedge funds (Goliath) who are short selling the stocks.
The main stock was Gameshop (GME) which rose to a ridiculous value of $483 per share, closed Friday $63. I mentioned this was more akin to a casino rather than investing with punters playing a game of musical chairs. Well, most of the chairs have been removed and the value has collapsed.
The table below shows the total value of GME.
Jan 4: $1.2 billion
Jan 11: $1.4 billion
Jan 19: $2.7 billion
Jan 25: $5.4 billion
Jan 26: $10 billion
Jan 27: $24 billion
Jan 28: $35 billion
Jan 29: $23 billion
Feb 1: $16 billion
Feb 2: $6 billion
Feb 3: $4 billion
The general public heard about this story on Jan 26-Jan 28. Unfortunately, if they punted they are staring at some large losses. The so-called revolutionary change that some were hoping for last about a week. However, hopefully, there will be some regulatory changes regarding – short selling.
Shane Oliver sums it up well.
Concerns about the Reddit/GameStop/Robinhood frenzy driving broader volatility in share markets have faded. And for good reason. After surging 600% or so GameStop has plunged to be back near where it started. The Reddit crowd will work out just like everyone else has over the decades that there is no free lunch when it comes to investing and excitement does not necessarily equal investing success. As always it may take a bit of pain to learn that lesson. But meanwhile, share markets will continue to see the normal pattern of booms and busts and euphoria and despair against a long-term rising trend driven by the fundamentals of earnings and interest rates.
Investment Market Outlook
AMP’s Shane Oliver – weekly market outlook
– Shares remain at risk of a short-term correction after running up so hard recently, and 2021 is likely to see a few rough patches along the way. But timing such moves will be hard and looking through the inevitable short-term noise, the combination of improving global growth helped by more stimulus, vaccines and low-interest rates augurs well for growth assets generally in 2021.
– We are likely to see a continuing shift in performance away from investments that benefitted from the pandemic and lockdowns – like US shares, technology and health care stocks and bonds – to investments that will benefit from recovery – like resources, industrials, tourism stocks and financials.
– Global shares are expected to return around 8% but expect a rotation away from growth heavy US shares to more cyclical markets in Europe, Japan and emerging countries.
– Australian shares are likely to be relative outperformers helped by better virus control enabling a stronger recovery in the near term; stronger stimulus; sectors like resources, industrials and financials benefitting from the rebound in growth; and as investors continue to drive a search for yield benefitting the share market as dividends are increased resulting in a 4.5% grossed-up dividend yield. Expect the ASX 200 to end 2021 at a record high of around 7200.
– Ultra-low yields and a capital loss from a 0.5-0.75% increase in yields are likely to result in negative returns from bonds.
– Unlisted commercial property and infrastructure are ultimately likely to benefit from a resumption of the search for yield. Still, the hit to space demand and hence rents from the virus will continue to weigh on near term returns.
– Australian home prices are likely to rise another 5% or so this year is boosted by record-low mortgage rates, government home buyer incentives, income support measures and bank payment holidays. Still, the stop to immigration and weak rental markets will likely weigh on inner-city areas and units in Melbourne and Sydney. Outer suburbs, houses, smaller cities and regional areas will see relatively stronger gains in 2021.
– Cash and bank deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.1%.
– $A may see bouts of volatility but is likely to move towards 80c.
– Eurozone shares rose 0.4% on Friday as did the US S&P 500, as softer than expected US payroll employment added to expectations for more stimulus in the US. The positive global lead saw ASX 200 futures rise 5 points, or 0.1%, pointing to a modestly positive start to trade on Monday for the Australian share market.
Profit results due
The CORE Watchlist stocks are due to report their profits on the following dates;
Jan 29 Resmed (RMD) – quarterly result was up 12%
Feb 10 Amcor (AMC) CBA Orora (ORA)
Feb 11 AMP Telstra (TLS) Transurban (TCL)
Feb 15 JB Hi Fi (JBH)
Feb 16 BHP Brambles (BXB)
Feb 17 Coles (COL) Orora (ORA) Sonic Health (SHL) Rio Tinto (RIO)
Feb 18 CSL Crown (CWN) Origin Energy (ORG) Wesfarmers (WES) Woodside (WPL)
Feb19 Goodman Group (GMG)
Feb 22 Lend Lease (LLC)
Feb 24 Woolworths (WOW)
Not all companies report at this time of year.
A BIG WEEK COMING UP.
Broker Target Price changes
Computershare (CPU) increased from $14.42 to $15.01
Origin Energy (ORG) decreased from $7.85 (highest broker) to $6.50 (still highest broker)
Nine Entertainment (NEC) increased from $2.95 to $3 (equal highest broker)
Resmed (RMD) increased from $28.50 to $29.10
Seek.com (SEK) increased from $22 to $24.90
Ord Minnett/JP Morgan
Crown (CWN) increased from $8.10 (lowest broker) to $8.80 (still lowest broker)
Orora (ORA) increased from $2.60 to $2.85
ORG decreased from $6.16 to $5.30
Amcor (AMC) decreased from $17.30 to $17.10
ANZ increased from $26 to $28.50 (highest broker)
NAB increased from $22 to $27.50 (highest broker)
ORG decreased from $6.29 to $6.04
RMD decreased from $30.99 (highest broker) to $30.09 (still highest broker)
Westpac (WBC) increased from $25.50 to $27.50 (highest broker)
AMC increased from $18 (highest broker) to $19 (still highest broker)
Brambles (BXB) decreased from $12.80 to $12.40
CSL decreased from $294 to $272 (lowest broker)
ORG increased from $5.83 to $5.86
RMD decreased from $29.20 to $27.40
Sonic Health (SHL) decreased from $40.40 (highest broker) to $40.10 (still highest broker)
AMC decreased $17.26 to $17.19
Coles (COL) increased from $18.30 (lowest broker) to $18.50 (still lowest broker)
ORG decreased from $5.58 (lowest broker) to $5.35
SEK increased from $19.90 (lowest broker) to $28.30 (highest broker)
Wesfarmers (WES) increased from $49.70 (highest broker) to $60 (still highest broker)
Woolworths (WOW) increased from $40.75 to $44.50 (equal highest broker)
Woodside (WPL) increased from $27.85 to $28.30
ORG decreased from $6.55 to $4.76 (lowest broker) Today’s Sector Movements
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 93.39% to 95.92%.
Overall Earnings Per Share (EPS)
FY21 increased from 30.8% to 30.89%.
THE FOLLOWING HASN’T BEEN UPDATE SINCE THE LAST NOT SO
Most expensive – Seek.com (SEK) 128.1%
Least expensive – Origin Energy (ORG) is the cheapest at 74.3%.
The CORE Watchlist is very mixed with 6 (5) stocks trading above 100% while 7 (7) are trading below 85% (AMC BXB LLC NEC NXT ORG & ORI)
Stocks trading below all broker forecasts are as follows; (it has been a handy indicator in the past).
AMC current price $14.38 Broker range $17.00 to $18
ANZ current price $23.71 Broker range $24.43 to $26.20
BXB current price $10.57 Broker range $11.90 to $13.69
COL current price $18.21 Broker range $18.30 to $21.20
CSL current price $271.72 Broker range $290 to $329
LLC current price $12.01 Broker range $13.16 to $17.17
MQG current price $131.40 Broker range $136.81 to $155
NEC current price $2.41 Broker range $2.75 to $3.00
NXT current price $11.60 Broker range $13.20 to $14.75
ORG current price $4.74 Broker range $5.58 to $7.85
ORI current price $15.26 Broker range $16.50 to $19.70
WBC current price $21.13 Broker range $21.43 to $24.60
Banking Index (not updated since last Not SO)
Like the CORE Watchlist index, the Banking index is the average target price of the four major Banks 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 99.7% to 97.9%. Ords and Macquarie updated their target prices and the market pullback over the last two days. We have seen the brokers reviewing their forecasts as the economic picture improves. We are expecting more given a couple of brokers haven’t reassessed their numbers this year yet.
Ords and Macquarie also increased their dividend forecasts with the figures below. Investors are likely to be focussing on the growing dividend yields
Based on yesterday’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.
FY20 % FY21 % FY 22 %
ANZ 60.0 2.48% 103.7 4.28% 125.5 5.18%
CBA 298.0 3.50% 299.8 3.52% 347.5 4.08%
NAB 60.0 2.51% 95.0 3.97% 116.8 4.88%
WBC 31.0 1.44% 99.2 4.62% 117.0 5.45%
MQG 430.0 3.22% 375.4 2.81% 560.6 4.20%
– US VIX Index decreased from 30.21 to 20.87. The fear index nearly halved in the last two weeks as the GME casino settled. 10-17 is normal. – Iron Ore remained at 157.42. Hit a nine-year high of $176.45.
– Copper increased from $3.55 to $3.64 Eight years high $3.64. A good sign.
– Gold decreased from $1844 to $1815. Record high $2063.
– AUD/USD increased from 76.39c to 76.77c. Some forecast 80c+
– USD/CNY increased from $6.46 to $6.47 The lowest point $6.45 in 2.5 years
– Asian markets – UP
– US 10 year Bonds increased from 1.05% to 1.17% Hit a low of 0.31%.
– The US 30 year Bond which increased from 1.80% to 1.98% (if this one start to rise, then it could provide inflation and volatility sign). The highest level for the 18 months.
– German Bonds increased from -0.54% to -0.43%. Hit a low of -0.9%
– Japanese Bonds increased from +0.046% to +0.06%
– Aussie Bonds 10 year Bonds increased from 1.10% to 1.25%. Lowest point 0.68%
– Other rates 1 year 0.05% 2 year 0.11% 4 year 0.28% 5 year 0.44%. 15 year Bonds 1.61%. Global interest rates have moved higher over the week on more liquidity from US COVID funding and a growing expectation of inflation.
– Oil price increased from $52.04 to $57.07.
– Tungsten increased from $240 to $245 mtu to $245 to $250mtu. King Island Scheelite (KIS) received a $10m loan from the Tassie govt. This has increased in all the tungsten players who are considered critical metals by UK, Europe, US and Australian governments.
This week & next week
Last “Not So” opened in 6 Aust states (missing SA & ACT) US 4 states (Virginia, South Carolina, Georgia & California) & UK.
This week – Back in the office. Investment Committee meeting with Brad Matthews
Next week – February review meetings start
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