04 December 20
Nuix hits the boards
04 December 20
Nuix hits the boards
04 December 20
Iron ore surges, are we long enough? (A2M, TWE, FMG, RIO, BHP, VALE US)
03 December 20
Iron ore takes flight (MQG)
03 December 20
Coal is threatening to rise like a phoenix (CRM US, WHC, NHC, YAL)
02 December 20
ASX holds steady as Sydney returns to the dancefloor, GDP ahead of expectations (NWH, Z1P)
02 December 20
Income Note: The future of wealth management, according to IOOF (IFL, CLW, IGL, SIQ)
02 December 20
Overseas Wednesday – International Equities & Global Macro Portfolio (BIN, TWE, TTD US, ZM US, GOOGL US, WFC US, SVXY US, VGK US)
01 December 20
ASX rallies, lots of Aussie’s buying Pizza & KFC, IOOF outlines future of wealth management (CKF, DMP, IFL, SFR, ABY)
01 December 20
3 “elastic bands” MM considered in the last 24-hours (CBA, CGC, TWE, MFG, PPT, RHC, CSL)
30 November 20
ASX books best month in 30 years, Treasury Wines (TWE) hit hard, IT stocks see some love again
Yesterday wasn’t the ASX’s proudest day with the trading system failing for almost 6-hours - a lot of not-too subtle lines circulating around the office yesterday however it seems the ASX has a glitch like this every 4 years – last time it happened was in 2016 and 2012 before that – fingers crossed for today. This particular ASX technical upgrade reminded me of what Apple regularly run through my phone, it never works as well afterwards. All we know for sure is the market opened strongly coming within a whisker of 6500 by 10.24am before the curtain fell, the futures implied stocks would have drifted for most of the day before finishing close to their highs but only a crystal ball will know the exact answer.
The Asian region was strong with the Nikkei leading the way rallying over 2% to scale almost 30-year highs, I keep hearing experts trying to pick a top in this rally but the path of least resistance clearly remains up for most indices. Overnight the US S&P500 traded within 1% of its all-time high supported by excellent news on the vaccine front from Moderna whose latest trials showed a 94.5% effectiveness, the light appears to be shining brightly at the end of this very long and dark tunnel.
This morning locally was being confronted by the disturbing news from Adelaide where another major cluster has emerged, yet again from quarantine, the daily count has jumped from 3 to 17 in one day. The outbreak has forced the premier to move the state into fresh restrictions in a concerted effort to stop its spread accelerating further. We know aggressive restrictions early on are the best approach and fortunately it feels like Steven Marshall’s currently on top of the problem.
MM remains bullish the ASX200 with stops under 6275.
ASX200 Index Chart
Crown Resorts (CWN) wrapped up its closing submission to the NSW casino enquiry yesterday, my interpretation was “were sorry, we’ve made mistakes, but we are cleaning up our act so please don’t retract our licence”. COVID may actually be a saving grace for CWN with its Sydney Barangaroo casino due to open in December, any attraction to future tourists is likely to be welcomed with open arms, my “Gut Feel” is they will get lucky and CWN will pop higher.
MM is bullish CWN with stops below $8.70.
Crown Resorts (CWN) Chart
Throughout 2020 I’ve lent away from taking profit on SGR and switching to CWN for the obvious underlying risks associated with Jamie Packer et al but following SGR’s +37% rally over the last 3-months compared to CWN which is basically unchanged the dynamic has clearly changed, were seeing clear value emerging in CWN when we look into the company’s future over the next 1-2 years.
MM is still considering switching from SGR to CWN.
Crown Resorts (CWN) v Star Entertainment (SGR) Chart
Market estimates for Commonwealth Bank’s (CBA) dividend are slowly edging in the right direction, forecasts for next year have risen to A$2.19 per share up from A$2.12 per share, that puts the stock on a yield just under 3% fully franked – much better than term deposits which have fallen well under 1% in most cases. We remain bullish the Australian banks with an improvement in their dividend outlook an excellent tailwind moving into 2021.
MM remains bullish CBA with an initial target ~$80.
Commonwealth Bank (CBA) Chart
Overseas Indices & markets
Overnight US stocks again rallied strongly with the Dow closing up 470-points at fresh all-time highs, we believe the broader market will follow suit albeit in a more lacklustre fashion as the tech space continues to drag the chain – the NASDAQ remains 3.5% below its equivalent peak posted back in September.
MM remains bullish US stocks into 2021.
US Dow Jones Index Chart
Citigroup are now calling $US down 20% on vaccine news
The US election victory by Joe Biden looks to have pushed most analysts onto the sell / bearish side of the ledger for the greenback, we don’t always like to be contrarian investors but having been bearish the $US all year it’s probably almost time to fade the 10% drop witnessed since March. As subscribers know we have a short-term target for the $US around 2-3% lower, not far but the moves likely to lead to some decent moves in commodities and related stocks:
A drop by the $US should theoretically push the likes of crude oil and copper higher, just as we witnessed last night – BHP has rallied ~2% in the US overnight. Conversely gold which would normally rally with a weak $US is struggling as COVID bets are being liquidated plus we’ve seen central banks selling for the first time in years to fund their respective economic recoveries, ultimately we believe this will produce an excellent buying opportunity in the precious metal but we’re being patient with our exposure at this point in time.
Our “best guess” for the $US is illustrated below i.e. a washout to fresh 2-year lows followed by a countertrend bounce as too many people become bearish creating a classic “crowded trade”.
MM is short-term bearish the $US.
The $US Index Chart
A weak $US by definition flows across other cross rates and MM is still targeting the 80c region for the Aussie but I would caution that if we see reflation next year the medium term surprises are likely to be on the upside. As we mentioned yesterday the Victorian Government have just announced a major stimulus package which we think will be a roadmap for other State Governments to follow. Likewise MM expects the developed world to keep their fingers firmly on the stimulus button which should ultimately lead to reflation with when being the million dollar question – remember countries like the US, Britain, Germany and Japan are still suffering peak virus numbers implying they still have major economic packages yet to be unveiled.
MM remains bullish the $A.
The Australian Dollar ($A) Chart
The ASX has seen its fair share of exaggerated cycles over recent years from Lithium to gold and the chase for yield to BNPL stocks with caution always prudent when the crowd believes it’s all too easy. The local markets insatiable appetite for $US earners definitely falls into this category and this years 10% pullback since March should have worried a few complacent fund managers. MM has called the $US better than most markets in 2020 hence the $US earners might be in for a choppy ride into Christmas, but it’s not necessarily time to run from the sector, if anything it might be a buy if / when we see a spike lower in the $US.
There are a few notable groups of shares that historically benefit from a weak $US which by definition have loved the tailwind of the last decade but as subscribers know we believe this should no longer be taken for granted:
Healthcare – CSL Ltd (CSL), Cochlear (COH) and ResMed (RMD) all receive a significant portion of their earnings in $US.
IT – companies such as Altium (ALU) and NEXTDC (NXT) enjoy major revenue in the US.
Resources – the likes of BHP Group (BHP) and RIO Tinto (RIO) earn more from the exports which are denominated in $US but these same commodities often rally when the $US falls so it can be more of a sentiment game.
Materials – stocks like James Hardie (JHX) and Boral (BLD) have major operations in the US.
Fund Managers – Magellan (MFG), Macquarie (MQG) and Janus Henderson (JHG) similarly have major $US exposure.
With mixed results MM has avoided a few stocks on this list due to our bearish opinion on the $US but if we are looking for a panic washout in the greenback 1 or 2 quality businesses might provide us with an excellent entry opportunity if the washout flows through to equities – as we always say successful investment should take a phrase out of the Scouts handbook “always be prepared”. Today I have looked specifically at 3 well known stocks MM is considering into any $US washout.
1 CSL Ltd (CSL) $314.94
MM has avoided Australia’s largest listed company since March as its failed to embrace the market recovery however we believe the major underperformance since March is behind us and CSL can comfortably rally ~20% from current levels – on a side note a potentially huge positive for the ASX200 Index,
MM is bullish CSL into 2021.
CSL Ltd (CSL) Chart
2 Boral (BLD) $5.16
Building business Boral (BLD) is one company we’ve talked about but not bought since March – a drawback of running a real as opposed to theoretical portfolio. However, following on from early comments around stimulus we are keen on BLD into pullbacks, especially down towards $4.50 due to weakness in the $US.
MM is keen on BLD around $4.50.
Bora (BLD) Chart
3 Cochlear Ltd (COH) $232.99
Hearing implant business COH just like CSL has come to life this month after treading water for much of 2020, we feel new all-time highs are almost inevitable into 2021 hence any pullback caused by a $US we now regard as a buying opportunity.
MM likes COH looking for ~15% upside.
Cochlear Ltd (COH) Chart
MM is keen on CSL, BLD and COH moving into 2021, the key as is often the case is entry levels for good risk reward. We have avoided much of the underperforming healthcare sector in 2020 but this may be addressed in the weeks ahead.
Have a great day!
James & the Market Matters Team
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