Australia | Jul 31 2014
By Mathan Somasundaram, Baillieu Holst Quant Strategy
Summary: Aussie market continues to hold up despite geopolitical uncertainties and lack of any clear global lead. US data and US Fed remain supportive of the equity markets while we wait for the next instalment of China PMI…my guess is that it will be a very bullish number…given the track record is that it is always better than China HSBC Flash PMI.
Fund managers are playing chicken with the market and signs are that they are beginning to fold after a cracker July. The market pundits are beginning to soften their negative views with M&A cycle and stable outlook for reporting season. We continue to feel that corporate earnings will be close to expectations (i.e. no “Valley of Death”) while low interest rates are likely to drive M&A cycle sooner than later.
We continue to be big fans of the media sector with M&A coming…preferred picks are APN, PRT, SXL, TEN and SWM. We also see potential M&A cycle coming to Mining Service sector with ANG, BKN, CDD, WOR and UGL as potential targets….every dog
has its day. ACR is another heavily shorted biotech stock now on the bounce back…from $0.75 low in Jun to $1.84 today…as we have been saying…headed to $2 with some testosterone. WPL has had a decent airplay with the Shell buyback deal today. Given that they did not do it as a block trade to institutional investors, the growth/yield/valuation outlook of WPL and the franking credits being transferred to Shell…it is not hard to see why the shareholders of WPL are asking why are they taking the risk when Shell wants to get out…and may be they do have a point. If it was such a good deal, it won’t matter much anyway as an institutional book build will clear the overhang…but the market is always right.
Trading idea of the day: Veda Group (VED)…we turned positive after it was sold down to $1.85 with investors flipping one IPO for another…traded as high as $2.50…going to $2.30. We see VED’s value emerging as the economy moves towards online
models drives the need for credit worthiness.
Market Move: Aussie market was up 0.18% with turnover was just below $4.8b.
Macro Events: Tonight – None. Tomorrow – AIG manufacturing PMI, RBA July commodity price index, ResMed reports earnings, US July non-farm payrolls, US July ISM manufacturing report, China July purchasing managers index, Bank of Japan governor Haruhiko Kuroda speaks.
WHAT WE LIKE => QUALITY, YIELD, BIG MINERS, EARNINGS CERTAINTY, MOMENTUM, CONSTRUCTION, FOOD, ONLINE, MEDIA, TELCO, HEALTHCARE, STAPLE, GLOBAL EARNERS
WHERE WE SEE RISK => INSURANCE, DISCRETIONARY RETAIL, MINING SERVICES, LOCAL CONSUMER CYCLICALS
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