Morning Report / COVID’s moving Europe back into Lockdown (FMG, NHF, TSLA US, VUK, URW, CTD)

By Market Matters 22 December 20

COVID’s moving Europe back into Lockdown (FMG, NHF, TSLA US, VUK, URW, CTD)

Market Matters Morning Report 22nd December 2020

The daily Market Matters Reports will finish up for Christmas this afternoon and will recommence on Monday 11th January. During this time, if we do make any changes to our portfolios, we will send out alerts, furthermore if anything dramatically changes in the market, we will update subscribers accordingly – this usually happens when I’m away! For clients at Shaw, I’ll be on the desk until Christmas Eve, back on the 7th January, however the desk will be open and available all trading days during the period

As we say goodbye to a long and testing 2020, I’m sure most people would regard the index sitting unchanged for the year as an astonishing win – we waved goodbye to 2019 with the index at 6684, only 15-points above where we closed yesterday. The volatility over the last 12-months may not have matched the GFC in absolute points / percentage terms but it certainly did in terms of speed of both the decent and recovery, also noticeably the ASX200 also sits within just a few percent of where the market closed back in 2007.

Many pundits like to call it a lost decade simply because negative titles attract more “hits” than positive ones but to simply look at the index is madness when so much exciting opportunity exists under the hood on both the stock and sector level – forget the last decade, over the last 3-months alone ANZ Bank (ANZ) is +38%, Fortescue (FMG) +48% & Xero (XRO) +61% whereas a2 Milk (A2M) is -37%, Appen (APX) -22% and Zip (Z1P) -15%, the message from MM is active investing is well & truly alive, in our opinion there has never been a more important time for investors to have their fingers on the market pulse.

Our 2021 Outlook piece will come out in early January when we start what I’m sure will be another exciting year, last year we didn’t forecast the coronavirus, but we did call the Aussie up towards 80c and the Resources Sector to significantly outperform to name just two, I’m already excited about 2021, although I’m looking forward to a break in between. Have a great Christmas and New Year, and thanks for your ongoing support of Market Matters.

MM remains bullish the ASX200 into 2021.

ASX200 Index Chart

Iron ore surged again yesterday managing to break above 1200 CNY/MT, that’s up ~60% in just 3-months. As we often quote “surprises usually unfold with the trend” and that’s clearly up at the moment for this bulk commodity, analysts are factoring in significantly lower prices meaning major upgrades are likely to wash through the likes of Fortescue (FMG) and RIO Tinto (RIO), the consensus forecast for FMG’s yield is still 7.7% fully franked making the stock feel very cheap even after its tripled since March.

Also, last time iron ore was vaguely close to these levels, a fare bit lower to be precise, the $A was above parity reinforcing our bullish outlook for the Australian Dollar.

MM remains bullish iron ore and the Resources Sector.

Iron Ore January 2021 Futures Contract (CNY/MT) Chart

Fortescue Metals (FMG) Chart

About 10-days ago when NIB Holdings (NHF) was trading ~12% lower we flagged a likely breakout towards $6 which has now come to fruition. This little note is not about patting ourselves on the back as opposed to illustrating the same pattern we are seeing across many stocks in the ASX, our preference is NHF will rally up towards $7 but short-term its now in wait and see territory.

MM is neutral NHF around $6.

NIB Holdings (NHF) Chart

Overseas Indices & markets

Overnight we saw a mixed session from US stocks with Energy and Utilities weak while the Financials were strong, overall considering the concerns / falls in Europe the S&P500 remaining within 1% of its all-time high is a very positive outcome in our opinion.

MM remains bullish US stocks / risk assets into 2021.

US S&P500 Index Chart

Tesla Inc (TSLA) was welcomed into the S&P500 overnight with a thud as the relatively new car maker saw its shares fall over 5%, a move that reminded me of Jo Bo’s quote we’ve trotted out twice in recent reports – “fund managers make sheep look like independent thinkers”. As Elon Musk got significantly richer fund managers were forced to buy his stock with mandates dictating a certain % of their holdings be in S&P500 companies i.e. the rally became self-fulfilling until it actually listed in the world’s major index when the recent buying by definition became satisfied.

MM likes TSLA under $US600.

Telsa Inc (TSLA US) Chart

Three stocks of interest if we get the European COVID wobbles.

This morning the news is again all about COVID, just when we thought the approved vaccines would change the channel:

1 – In Australia we have Sydney’s Northern Beaches outbreak impacting thousands of peoples Christmas, all eyes will again be on Gladys at 11am as she releases the latest infection numbers, fingers crossed we can come in under 10 this time.

2 – The UK and especially London has moved into a tough new lockdown for Christmas after identifying a mutated strain of COVID-19 which spreads 70% faster, fortunately it doesn’t appear to be more deadly.

Already we have 2 cases of the UK strain in Australian quarantine, I pray the pollies have learned their lesson from recent Sydney events and have significantly tightened up the risks around overseas travellers. The UK is moving into Tier 4 lockdown (think Victoria) as the mutated virus has basically spread everywhere leading to 40 nations banning flights from Britain. Becoming globally persona non grata is not the ideal back drop for Boris Johnson to try and negotiate a reasonable last-minute outcome for BREXIT, it’s times like this that the English Channel is very useful!

European stocks were initially smacked overnight on the virus news but the current mindset of “buy the dips” again prevailed, the EURO STOXX 50 closed down -2.7% but losses were more than 4% at its worst while the UK’s FTSE fell less than 2% recovering over half of its losses in the last few hours. MM is bullish the European region, but the risk / reward is not appealing considering the macro risks, we believe patience is prudent at present especially as we have relatively low cash levels across our MM 4 Portfolios .

EURO STOXX 50 Index Chart

UK FTSE Index Chart

Today I have revisited 3 UK / European / travel facing stocks looking for good risk / reward buying levels into current weakness, overnight Europe approved the Pfizer vaccine so it looks like full steam ahead for vaccinating the whole continent.

1 Virgin Money-CDI (VUK) $2.24

The worst performing stock yesterday was Virgin Money (VUK) which tumbled almost 7% as the negative UK news gathered momentum. Since Britain has fallen back into a COVID control VUK has fallen ~20%, while we regard this as a low-quality operator it is priced accordingly and we believe it has significant upside to an eventual economic recovery in the UK, we are bullish targeting around $4.

Importantly the new vaccines appear to work on the new mutant strain of the virus and with the UK vaccinating ~130,000 in its first week it now feels like a logistics issue moving forward as opposed to praying for an answer to the current pandemic.

MM is considering VUK around $2.

Virgin Money-CDI (VUK) Chart

2 Unibail-Rodamco-Westfield (URW) $4.88

European shopping and convention centre owner URW has slipped 7% on the regions worries, not a big deal considering its rally since November after the company announced a shareholder vote had vetoed a capital raising – at MM we like stocks who hold up in the face of negative news. We would be particularly keen on URW a few % lower.

MM likes URW into current pullback.

Unibail-Rodamco-Westfield (URW) Chart

3 Corporate Travel (CTD) $17.85

No major change with CTD, its now corrected ~20% as the combination of the Northern Beaches cluster and general global picture weighs on the stock, we remain keen on any panic spike down below the $16 area.

MM likes CTD below $16.

Corporate Travel (CTD) Chart


MM likes VUK, URW and CTD at the levels discussed above.

Have a great day,

James & the Market Matters Team


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