Afternoon Report / China National People’s Congress dull ASX bulls

By Market Matters 22 May 20

China National People’s Congress dull ASX bulls

Market Matters Afternoon Report 22nd May 2020

WHAT MATTERED TODAY

The ASX gave up small gain early in the session with investors again remaining cautious into the weekend, taking back some of the gains seen on the index through the week. The main drop seen early came on the back of comments out of the delayed National People’s Congress in China where the communist party taking an aggressive tone against the stance of Australia and the US in terms of their handling of the corona virus outbreak. Despite the fighting words, talks quickly moved on to the need to stimulate the economy and its reliance on steel production to do so which would require Australian iron ore and likely keeping up an amicable relationship. The market seems to be caught in a wedge between geopolitical tensions along with economic shutdown vs the stimulus injections from central banks and governments. The battle continues.

Two big pieces of stock news for our income portfolio today – firstly Wesfarmers who announced it would cut 60-75 Target stores and convert a number of other sites into Kmart branded stores as well as a number of write-offs against the business. The move could see the number of Target stores in operation cut by more than 50%. Shares initially opened lower but tracked higher through the session – ultimately the restructure was expected after many years of Target chewing up profits. Ripping the band aid off may be the best thing for Wesfarmers longer term. We own WES in the Income Portfolio, unconcerned about the dividend given most of the costs are non-cash while the market tends to look at underlying results. Second of the bat was Sydney Airports (SYD) which told investors at the AGM that they did not see the need to raise equity even if there was no revenue through to the end of 2021. While I’s not a pretty sight for the airport at the moment, the comments mean that shareholders should expect some dividend return in the medium term if there are no hiccups as the travel restrictions are eased.

Overall, the ASX 200 closed down -53pts or -0.96% to 5550. Dow Futures are trading down -147pts/-0.60%.

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE;

Sector moves this week

Stock moves this week

BROKER MOVES;

·        NAB Raised to Buy at Bell Potter; PT A$17.30

·        Adelaide Brighton Cut to Underperform at Macquarie; PT A$2.30

·        NRW Holdings Raised to Overweight at Wilsons; PT A$3

·        Mosaic Brands Cut to Market-Weight at Wilsons

·        AusNet Raised to Hold at Morningstar

·        Steadfast Cut to Hold at Morningstar

·        GPT Group Raised to Buy at Jefferies; PT A$4.50

OUR CALLS

We are selling the QQQ ETF for a gain in the ETF portfolio and cutting LVMH for a loss in the international portfolio.

Major Movers Today

Have a great Weekend all

Harry & the Market Matters Team

Disclosure

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