Afternoon Report / Risk off continues for stocks as US labels China currency manipulators (BIN, FMG, PNI)

By Market Matters 06 August 19

Risk off continues for stocks as US labels China currency manipulators (BIN, FMG, PNI)

Market Matters Afternoon Report 6th August 2019

WHAT MATTERED TODAY

A big day for the local market with the index losing another 2.44% coming on the back of a 1.90% decline yesterday – the drop from recent highs to today’s low is now 431pts / 6.2% and in the very short term, the selling now looks overdone. This morning US futures opened on the back foot, down another ~1.5% post US close - that saw our market open down nearly ~200pts before some aggressive buying in some stocks played out.  US Futures rallied +2% from the lows to be trading up around 0.30% at 4pm – volatility reigned supreme!

The early negativity came after the US officially labelled China a currency manipulator while the positive offset came when they actually manipulated their currency slightly higher on the day – traders liked the conciliatory move and bought US futures up from the lows. Seems China is only a manipulator when the manipulation hurts the US

At a sector level, the material stocks bounced back (relatively speaking) in a weak market while the IT stocks were once again hit hard, off another ~4% after finishing down ~5% yesterday. ***The RBA kept rates unchanged today at record lows***

Overall, the ASX 200 lost -162pts today or -2.44% to 6478. Dow Futures are trading up 77pts /0.30%.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE;

Big Moves: Some big moves today at the stock level and we used it to tweak the MM Platinum Portfolio…Selling Newcrest (NCM) into early strength, Buying CBA  and up weighting RIO, & FMG into early lows. A market like this lends itself to more activity. The Iron Ore miners turned out to be the standout in a weak market  - Fortescue (FMG) the best of them closing at $7.29 after being down as low as $6.59, the stock actually finished up on the day by 2.82% after presenting at the Diggers & Dealer event . More on that below.

Days like today give a good insight into what’s on buyers wish list into weakness – much like MM presented a list this morning, many insto’s will have stocks and prices where the button gets pushed – the point of value.  Bingo (BIN) a case today printing a weak $2.13 low before rallying hard to a $2.40 high – there was someone bidding the stocks hard today implying a decent buyer is out there into weakness. We talked BIN this morning, looking to buy sub $2.20 (but preferably after they report later in the month).

Bingo (BIN) Chart

Fortescue Metals (FMG) +2.82%: Presented at the Diggers and Dealers today and it was guidance / commentary around their dividend that got the buyers back out. There was some in the market thinking the 60cps that was framed as a special dividend  in May looked more like a combination of special and full year dividend, packaged up as one payout ahead of the potential change of Govt / franking credit legislation, however today in a highlight slide the term dividends to date implies more to come when they report on Aug 26.

FMG have an ordinary dividend policy of 50-80% of underlying earnings with FY19 expectations hence there is the potential for A$1.10 vs paid to date of A$0.90 = a further 20c expected on August. We are now bullish on FMG.

Fortescue Metals (FMG) Chart

Pinnacle (PNI) +10.34%: A big day for PNI after reporting decent earnings  – not one we follow closely + it comes off a low base however inflows were strong across its managers overall and that dropped down to a rise in net profit of 32% to $30.5m for the full year. Funds under management hit $54.3 billion as at June 30 which included the ~$7b they acquired during the year. They announced a full year fully franked dividend of 9.3cps. They’ve found it hard to attract buyers in a strong market however a seas of red seemed to do the trick – go figure!

Pinnacle (PNI) Chart

Property Stocks Reported Today: While reporting season has drifted into the background, 3 property stocks were out with results today and Harry provided a run down on the numbers…no great surprises across the board, a special dividend from BWP was nice on asset sales.

BWP -1.83%: The landlord to many Bunning’s sites, BWP fell today despite beating in terms of earnings and dividend. Both beats were driven by asset sales and the trust was keen to reward shareholders however it does present a medium term problem. With Bunnings growth starting to slow, BWP flagged it will struggle to increase rents at the same rate over the next few years, tying rental increases to inflation which has largely stagnated. Shares were down today, although BWP did outperform the index.

Centuria (CMA) -1.41%: Very few surprises with CMA, as is standard and what you would expect from a trust that consistently updates the market on a range of metrics. CMA is building itself out as a quality pure play office REIT that gives its shareholders consistency. It was sold off hard early in the broad market rout but recovered well – once again a tough day to report.

SCA Property (SCP) -0.78%: The shopping centre REIT hit the mark today, with a large area of space held on long term leases with the likes of Woolworths SCP should never really come up with any major downside news. The only fright to shareholders was a small uptick in occupancy – the headline grabbing 37% fall in profit was more a blip on the radar with the company flagging falling valuations. More important to shareholders was the 6.7% increase in Funds from Operations (FFO).

Broker moves; 

  • Iluka Upgraded to Buy at Morningstar
  • Mineral Resources Upgraded to Buy at Morningstar
  • Reliance Worldwide Cut to Equal-weight at Morgan Stanley
  • Rio Tinto Upgraded to Buy at DZ Bank; PT 51 Pounds

OUR CALLS

In the Platinum portfolio we sold Newcrest (NCM) into early strength, bought CBA and up weighted RIO, & FMG into early lows

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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