Australia | Sep 03 2014
By Mathan Somasundaram, Baillieu Holst Quant Strategy
Summary: Aussie market delivered a positive day despite geopolitical risks rising and falling Iron Ore. We continue to be negative in the short term as the markets have run too far ahead of valuation, rising geopolitical risks, stocks going ex div escrow shares taking marginal buying and risk of ECB not living up to market expectations. The week is going to be all about Euro and Iraq. Iraq looks certain to see substantial war with the coalition of politics supporting one side. Irrespective of your views, the outcome will involve overall substantial loss of life with no clear view on the exit strategy. Ukraine issue is becoming almost a joke with sanctions and threats being thrown around like confetti.
Despite all the geo political risks, the markets are only concerned about what ECB can deliver. The risk is high that ECB will hold back on any plans till Ukraine and Iraq settles down…but how long can they wait. Locally RBA left things unchanged while flagging high unemployment, high currency, low growth, low wages and low rates. Government has finally repealed the mining tax by breaking another promise and trading superannuation growth. The more things change, the more they stay the same. Index change announcements on Friday…MYR and ARI are potential candidates that could see buying from small cap fund managers if they get kicked out of S&P 100.
Paradice and Hyperion went substantial on VED through escrow share sell down…VED has bounced from $1.85 to $2.37 in the past month…given the unique nature of the stock and growth potential in an online world, more to come. For more portfolio details…look at our Quant Strategy Model Portfolio on page 19. Further macro views are on page 8. If you need more information or customised advice, please contact Baillieu Holst.
Trading idea of the day: Seven West Media (SWM) – We remain positive on SWM despite recent sell off in media sector driving it down to low $1.80 levels. The last time SWM was around this level was when it was being used as a funding vehicle to buy NEC IPO. We feel similar situation has risen with potential escrow shares in NEC coming into the market. SWM continues to be the
leading free to air channel that delivers over 6% fully franked yield while you wait for the cyclical recovery.
Market Move: Aussie market was up 0.51% with turnover was just above $4.2b.
Macro Events: Tonight – US ISM manufacturing index, construction spending. Tomorrow – Australia economic growth, GDP,
RBA governor speech to CEDA; US auto sales, Beige Book; China non-manufacturing PMI, HSBC services PMI, HSBC
composite PMI.
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