Afternoon Report / China facing stocks feel the brunt as the Chinese market recommenced trade (BHP, IEM)

WHAT MATTERED TODAY

**Firstly, apologies for a late report this morning. Our overzealous email security picked up a term used in a subscriber question and quarantined the report before it was sent**

Following on the from weakness we saw overseas on Friday where the Dow Jones fell more than -600pts/-2%, Australian stocks were under the pump today, particularly the sectors leveraged to the Chinese economy. After a very weak open, the ASX 200 put in a low below 6900 around midday and then ebbed and flowed throughout the session, with some tentative buyers stepping up to the plate. MM was active the morning increasing weightings to 3 stocks and by the end of the session that felt a reasonable move. The Chinese market came back online at 12.30 today after a week off for Chinese New Year, and unsurprisingly, stocks fell more than 9%. The Chinese open actually corresponded with the Hang Seng trading higher while our own ASX rallied from that low point of the session, clearly the market was positioned for more on the downside amongst Chinese equities. US Futures also rallied during our time zone.

At a sector level today, Chinese exposure was clearly on the nose, Copper, Iron Ore & Oil down sharply in Asian trade - resource stocks still under pressure particularly Copper names like Oz Minerals (OZL) which fell more than 4% however we did see the bigger more diversified players find some love early with the low for the day happening at the start of trade. Most IT stocks did well in a soft market, ditto for the Telcos and some of the more defensive areas like Gold which performed  nicely, Evolution up by +2.96% on the session while Service Stream (SSM) also looked the goods today adding nearly +5% in a weak market – MM holding 2 of the top 4 stocks in the ASX 200 today. Elsewhere, banks were okay, property stocks were relative performers on decent building approvals data out for December while the more volatile mining services stocks came under pressure. All up, obviously a weak session but there wasn’t a lot of panic to it.  

Overall, the ASX 200 fell -93pts / -1.34% today to close at 9623. Dow Futures are trading up by +200pts

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE

Macro Driven Day: Day’s like this are driven by the prevailing macro news flow and on the whole, these were clearly negative. Coronavirus spreading, the majority of boarders are in lock down crippling global travel and now a lot of businesses in China are shutting their doors while things settle down. Chinese stocks down 9% on open following a week off was to be expected, and as we wrote this morning, it was probably a better outcome than many thought. While a decline of 90+ points for our market  is clearly a weak session, the US Futures did rally through our time zone and the rally stepped up around the time the Chinese market opened, again, implying that the ‘herd’ was expecting a more aggressive decline.

Shanghai Composite Chart

The  PBOC injected 1.2 Trillian Yuan (about $250b) into their financial system today to maintain adequate liquidity, a sign they’ll do what it takes to ensure the juggernaut continues to perform while locally, a rate cut is not well and truly on the cards, not tomorrow but certainly in the next few months. Ultimately assets will be priced off interest rates which are more likely now to stay lower for longer while any short-term impact on growth will likely be met with stimulus from central banks globally.

While it’s a hard environment to remain bullish in, buying stocks on the back foot continues to make sense. One position we added to today was BHP in our Growth Portfolio.

BHP Billiton (Chart)

Broker moves; 

  • Oil Search Cut to Underweight at JPMorgan; PT A$6.85
  • GUD Holdings Raised to Neutral at UBS; PT A$11.50
  • GUD Holdings Cut to Sell at Morningstar
  • ResMed Cut to Neutral at UBS; PT $174
  • Beach Energy Cut to Underweight at Morgan Stanley
  • Caltex Australia Cut to Equal- Weight at Morgan Stanley
  • Senex Raised to Overweight at Morgan Stanley
  • Autosports Cut to Market-Weight at Wilsons; PT A$1.69
  • Sonic Healthcare Cut to Sell at Morningstar
  • Newcrest Raised to Hold at Morningstar
  • Bluescope Raised to Hold at Morningstar
  • Panoramic Resources Cut to Reduce at Hartleys Ltd
  • Pilbara Minerals Cut to Reduce at Hartleys Ltd
  • Metals X Cut to Hold at Canaccord; PT 18 Australian cents

OUR CALLS

We added to existing positions in Oz Minerals (OSL), Boral (BLD) & BHP (BHP) in the Growth Portfolio today.

We were looking to add to our emerging markets exposure in the Macro ETF Portfolio today, however spreads were fairly wide. We will revisit tomorrow.

Emerging Markets Chart

US Futures are trading strongly at our close, for that reason, we will hold fire on our International Equities Portfolio today.

Major Movers Today

Have a great night

James, Harry & the Market Matters Team

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.

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