| Top Stories Today, March 10, saw the ASX rollercoaster continue after two positive days; the market dropped 57 points to close at 6714, which was slightly less than 61 points gained over the last two days. We are still positive for the month, but the main drops came from banks and resources, which have been the positive areas of late. The NASDAQ jumped after several down days on Wall St, so it was back to technology stocks hit late during to rising Bond rates. We need to note the US 10 year Bond rate is still lower than it was pre-COVID, so it isn’t a major concern given it’s still at 1.5%. Market traders are likely to get excited about the smallest moves as it gives them volatility to trade with, giving the finance media something to “scare the punters” with. So, we still think this volatility will be a dip rather than a market changer. However, at the moment, the dips don’t seem to last long. We are still cautiously Optimistic. Investment Committee Kevin and I had our regular meeting this morning. We noted the following: Economics – Global vaccines are providing economic confidence, but economies still require Govt support fiscal and monetary. – Interest is being kept down by Central Banks. RBA saying not moving until 2024. – Bond rates are starting to rise due to fear of inflation. – Australian GDP grew faster than expected by 3.1%. Economic confidence at 11 yr high. Markets – Markets continue to be supported with liquidity and a lack of returns from fixed interest. – Bond rates increasing have sparked some volatility as markets believe CB won’t hold off until 2024 before raising rates. The difference between 10 yr rates and cash are at their widest levels in some time. It’s likely to limit the 10 yr rather than force CB’s to increase rates. “Don’t bet against the Fed”. See charts below. – Frothy parts of the market are coming off with Tesla down 37% this year and other non-profit techs and high priced IPO’s giving up ground. – Rotation from growth to value with DOW hitting a new record high and the NASDAQ down 2% on the same day (Monday 8th) – Valuations are above historic levels but so are interest rates. Relative valuations remain reasonable, with an economic recovery picking up as the Vaccine outlook improves. – Still being selective as volatility likely to increase with the Bond rates moving. – A successful reporting season has given a clearer view in Australia, better virus controls and strong business confidence.   Annual Advice Agreements (AAA) – Existing clients These agreements will replace the 2 YEAR OPT-IN forms and the Fee Disclosure statements. The AAA is mandatory for all ongoing clients and the legislation provides little leniency regarding the timeframe of the agreements. We will send these agreements out each year, 1-2 months before they are due to expire. IF THEY ARE NOT RETURNED BEFORE THE DUE DATE WE HAVE TO TERMINATE OUR ONGOING SERVICES AND FEES which may mean a new statement of advice (SOA) and additional cost. Should you have any questions, please contact Chris Pyle. Other Stories – China iron ore imports rise by 2.8% for the first two months. – US warning companies about Chinese computer hacking following the recent attack on Microsoft. Looks like more money being spent on cybersecurity (HACK) – Macquarie changed the forecast for copper from 247k t global surplus to 226k t global deficit, mainly due to increased global manufacturing incl. increased electric vehicle demand. They have lifted their copper price forecasts by more than 20% for the next 4 years. Benefit BHP, RIO, OZL, SFR or MVR. – US auctioning $38bn of US 10 year notes at 5am AEDT. If lacking demand it could send rates higher with knock-on effect into equity markets. Broker Target Price changes Goldman Sachs Ord Minnett/JP Morgan Morgans Morgan Stanley BHP decreased from $48.05 to $47.50 Macquarie BHP increased from $50 to $55 Rio Tinto (RIO) increased from $135 to $142 Woodside (WPL) decreased from $28.25 to $28.20 Bell Potter/Citigroup Today’s Sector Movements Best – Technology 3.2% Worst – Materials -2.5% 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 91.29% to 91.13%. The CORE below 90% has shown in the past to be a good entry point to the market. Overall Earnings Per Share (EPS) FY21 Increased from 25.55% to 25.57% Most expensive – CBA 110.5%. Least expensive – Next DC (NXT) is now the cheapest at 73.6%. NXT had a good result and saw increases in the TP. For those who don’t know. NXT is where “cloud computing” is stored. The CORE Watchlist is still mixed with 4 (4) stocks trading above 100% while 6 (6) are trading below 85% (BXB COL NXT ORG SHL & TLS ) Stocks trading below all broker forecasts are as follows; (it has been a handy indicator in the past). AMC current price $15.17 Broker range $17.00 to $19.00 BXB current price $10.11 Broker range $11.70 to $13.84 COL current price $15.45 Broker range $17.30 to $20.70 CSL current price $252.21 Broker range $276 to $310 JBH current price $47.65 Broker range $48 to $55.10 NEC current price $3 Broker range $3.25 to $3.80 NXT current price $10.43 Broker range $13.50 to $14.80 ORG current price $4.50 Broker range $4.76 to $6.85 ORI current price $12.48 Broker range $13.60 to $16.20 SHL current price $30.55 Broker range $33 to $39.70 WOW current price $38.90 Broker range $40.65 to $44.50 WPL current price $24.96 Broker range $25.91 to $34.10 AMP removed 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 101.3% to 100.6%. Banks have continued to rally on the back of rising bond rates which is good for them. ANZ is up 10% in March (market up 1%), CBA 7% NAB 7% and WBC 4%. Based on Monday’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. FY20 % FY21 % FY22 % FY23 % ANZ 60.0 2.09% 127.5 4.44% 139.3 4.85% 149.0 5.19% CBA 298.0 3.41% 337.5 3.87% 377.8 4.33% 385.3 4.41% NAB 60.0 2.27% 106.5 4.03% 122.3 4.63% 132.0 4.99% WBC 31.0 1.25% 115.3 4.66% 127.5 5.15% 137.5 5.56% MQG 430.0 2.90% 475.2 3.21% 548.4 3.70% 609.4 4.11% Other Indicators – US VIX Index decreased from 24.66 to 24.03. – Iron Ore decreased from $174.11 to $164.41. Dropped 5.7% Hit a nine-year high of $177.98 last week. – Copper decreased from $4.03 to $4.01. Near ten year high of $4.35. A good sign for a commodity boom!! – Gold increased from $1705 to $1710. Bounced off 9 month lows. Record high $2063. – AUD/USD decreased from 76.99c to 76.76c. Some forecast 80c+ – USD/CNY increased from $6.50 to $6.51 The lowest point $6.45 in 2.5 years – Asian markets – MIXED – US 10 year Bonds decreased from 1.58% to 1.54% Hit a low of 0.31%. A recent high of 1.61% The US 30 year Bond decreased from 2.30% to 2.25% The highest level 2.34% for 18 months. – German Bonds decreased from -0.31% to -0.31%. Hit a low of -0.9%. Highest for some time -0.2% – Japanese Bonds increased from +0.11% to 0.12% – Aussie Bonds 10 year Bonds decreased from 1.78% to 1.72%. Lowest point 0.68% Recent high is 1.91% – Other rates 1 year 0.055% 2 year 0.11% 4 year 0.49% 5 year 0.77%. 15 year Bonds 2.07%. Global interest rates have moved slightly lower, but inflation expectations are still around. – Oil price decreased from $67.42 to $63.50. – Tungsten increased again from $260-$265mtu to $263-$268mtu This week & next week Last “Not So” opened in 5 Aust states (missing Tas ACT SA), US 2 states ( South Carolina California) & Singapore 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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