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
The ASX200 has continued its charge back towards the elusive 7000 level last enjoyed back in late February before the reality of COVID-19 hammered equities. The ASX has been a long-term major underperformer on the index level compared to most major global indices primarily because of the significant weighting the Banking Sector carries in our index but now the “Big 4” are advancing strongly the tables have turned, led by the likes of NAB which is up 16% in a month. MM believes the ASX will outperform its US peers into 2021, especially for investors who don’t hedge the FX exposure because the $A remains bullish in our opinion.
MM remains bullish the ASX200 with stops under 6275.
ASX200 Index Chart
At 3.30pm yesterday afternoon we saw news that the NSW gaming regulator has asked Crown to delay the opening of their gaming operations at its new & impressive Barangaroo Development in Sydney, which is set to open in December. Crown had been pushing to open 1 of its 4 gaming floors however the request from the regulator will see them put this on ice until the full report on the money laundering probe is released in February.
The news is not ideal for MM’s recent switch from Star Entertainment (SGR) into Crown Resorts (CWN) and we’d expect the stock to drop today.
The enquiry has forced CWN to re-fresh the board and we’d expect that has further to go, while the share register dominated by Jamie Packer is no doubt on the radar. Personally, I think they’ll be a large restructure before the final report is handed down which will address the issues head on, with the full report from the enquiry being damming, but ultimately a reflection of the old Crown, not the new one.
I have little doubt that corporate activity is also lurking in the wings, it was only April of last year that Wynn Resorts looked to buy CWN for $14.75 and April of this year that Lawrence Ho sold his CWN stake after apparently giving up his efforts to take a foothold in Australia’s casino industry. However as we all know in today’s new world a lot can change in just few months, CWN is floundering, borrowing money is cheap and it’s when companies experience issues like this that stark underperformance gets other operators interested, especially as a COVID vaccine appears close.
Remember, the share price has halved over the last +5-years factoring in a lot of negativity, but with new management and a change in those driving the ship we believe it could provide excellent value around current levels.
Crown Resorts (CWN) Chart
This year has seen some huge discrepancies in performance within stocks and sectors, who would have thought that over the last 3-months previous market favourite a2 Milk (A2M) would tumble almost 30% while Costa Group (CGC) which has caused MM much discomfort over the last few years would rally well over 30%. Diving into the numbers even further A2M is still 30% below its 2020 whereas CGC has surged over 75% - as we keep saying remain open-minded.
A2M was the worst performing stock in the ASX200 yesterday falling almost 5% after the company announced it was wary about meeting already lower sales targets. China has become the companies Achilles heel following a collapse in the daigou market in Australia due to COVID restrictions. Fully year revenue is still set to rise $1.8-9 bn from $1.73bn in 2020 but that’s hardly the exciting growth that A2M was used to hence the share price fall but this could easily be interpreted as a COVID recovery story as the business should benefit from a vaccine becoming available next year. MM hasn’t been in A2M all year but if the negativity takes the stock down towards the $12.50 region the valuation / recovery appeal could look attractive.
MM only likes A2M ~10% lower.
A2 Milk (A2M) Chart
As we touched on above fruit and vegetable company CGC has enjoyed a strong recovery in 2020 while some consolidation feels nigh we remain bullish as the company enjoys a rare combination of tailwinds, the first time in a number of years – our reflation thesis lend weight to a bullish outlook for CGC.
MM remains bullish CGC initially targeting ~$5.
Costa Group (CGC) Chart
Bitcoin is not an asset MM has ever invested in but it continues to illustrate how much money is in circulation as central banks continue to print money and interest rates languish around zero. The main crypto currency has now rallied ~70% in just a couple of months and while we can see a period of consolidation short-term the markets looks great and with bond yields providing an added tailwind we can see the 20,000 area in the coming months.
MM remains bullish Bitcoin medium term.
Bitcoin $US Chart
Overseas Indices & markets
Overnight US stocks saw a late sell-off to end on session lows, the vaccine good news continues with Pfizer now saying its trials showed a 95% effectiveness but overseas stocks struggling to make headway imply there’s a lot of good news baked into prices at current levels and a rest is due, hence we remain bullish into 2021 but wouldn’t be chasing at this point in time.
MM remains bullish US stocks into 2021.
US S&P500 Index Chart
Can gold again scale the $US2,000/oz level?
The gold price has corrected over 10% since its almost euphoric rally back in August when the rampant optimism in the press heralded a top perfectly – a common occurrence with stocks. We feel 3 major headwinds have emerged for gold in recent months but encouragingly on balance the 10% correction has been solid and controlled, more like rotational noise than aggressive liquidation:
1 US bond yields have been rising and many pundits have suddenly reverted to our way of thinking, they are calling a bottom in place for bond yields and top for prices i.e. longer-term bond yields next major move will be up.
2 Gold has lost its short term “safe haven” bid after the search for a COVID vaccine appears to have taken a meaningful step in the right direction, this has created a headwind for the precious metal.
3 A number of countries who have struggled with COVID have become sellers of gold to fund their economic recovery.
Considering the trifecta of negativity that gold has encountered over the last few months MM believes the pullback has been very orderly, its currently still smaller than back in March. Subscribers should remember our reflation outlook into 2021 which would be expected to create a bullish backdrop for precious metals.
MM is looking for a buying opportunity in gold.
Spot Gold $US Chart
MM is bullish longer dated bond yields in line with our reflation outlook but we should not forget the aggressive stance of central banks towards bond yields via QE, the markets favourite mantra since the GFC has been don’t fight the Fed. While we do ultimately believe bond yields will punch higher, its hard to imagine any meaningful rally above 1% in the months ahead removing arguably the largest headwind for gold.
MM is bullish bond yields long term.
US 10-year Bond Yield Chart
However, if US 10-years do surprise and rally to 2%, real interest rates (after inflation) are still likely to be around negative -1% courtesy of increased QE and unprecedented M2 money supply (basically a measure of money that’s in circulation). The chart below shows the printing presses are out like never before in an effort to avoid a deep recession brought on by COVID-19.
Over the decades the long-term correlation between gold in $US and M2 is excellent suggesting that until we see a definitive change in tact by the Fed / other central banks, gold can rally back towards $US2,000 and the current pullback looks more like a washout of an overly bullish market as opposed to a change in trend.
MM remains bullish gold while M2 remains elevated.
M2 Money Supply (M2) Chart
Hence if MM is looking for a catalyst to increase our relatively small gold position in our Growth Portfolio, the simple question is how:
1 Newcrest Mining (NCM) $28.95
MM is holding a small 3% position in NCM from over 10% higher, not ideal but we at least have room to average if the levels feel attractive. We are considering increasing this position to 5% ideally into a little further weakness.
MM is considering averaging NCM into weakness.
Newcrest Mining (NCM) Chart
2 Northern Star (NST) $14.40
The picture for NST is similar to NCM hence were not keen to step up to the plate just yet but into ongoing weakness its an option for the gold bulls.
MM likes NST into further weakness
Northern Star (NST) Chart
3 Evolution Mining (EVN) $5.67
Not surprisingly the picture is also similar for EVN although it has outperformed NCM over recent years. One additional attractive aspect to EVN is its forecasted 3.6% fully franked yield, if we see further weakness in EVN it will become attractive to MM.
MM likes EVN ~5% lower.
Evolution Mining (EVN) Chart
MM likes gold stocks into weakness, at this stage our course of action is either to simply increase our NCM position from 3% to 5% or to cut our NCM position and establish a larger 5% holding in EVN – clearly the preferred course of action will be determined by prices at the time.
Have a great day!
James & the Market Matters Team
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