Australia | Aug 20 2014
By Mathan Somasundaram, Baillieu Holst Quant Strategy
Summary: Aussie market kept the positive vibe in line with global sentiment despite BHP demerger bashing. Market has now rebounded back to the post GFC high we reached at the end of July. BHP demerger bashing took the sentiment away from the mining stocks while the banks recovered. We remain positive long term while turning negative today on the short term call.
Top 10 reasons why you should take profit on non-core outperformers…(1) US Fed risk to the market with FOMC minutes out tonight and Jackson Hole conference soon after (2) Reporting season has beaten the “Valley of death” expectations albeit not driving any substantial upgrades (3) Market valuations are once again stretched similar to end of July while earnings revision, growth and ROE are in decline mode (4) Volatility measures have come back substantially over the recent weeks and the risk is that they take off again (5) House price appreciation not having any effect on consumer spending despite RBA leaving rates low for longer (6) We have recovered all the losses from early August sell off, CBA going ex-dividend and BHP demerger bashing (7) Investors waiting for correction and/or upgrades while starving the market of the marginal buyer (8) Domestic risk remains with budget issues, regulatory changes, unemployment woes, rising costs and low growth (9) Global risk remains with geo-political (i.e. Ukraine, Iraq and Gaza), growth (i.e. China, Japan and Euro) and health (i.e. Ebola) (10) We remain positive long term with short term profit taking recommended…maintain core portfolio, reduce non-core portfolio.
Trading idea of the day: Cardno (CDD)…we have been positive on this stock since the selloff in early Aug to below $6…now $6.67…post result…CDD is a recovery story with global exposure that has potential M&A appeal. We see this stock trading back above $7 on the strength of the pipeline, global diversification and industry consolidation through M&A.
Market Move: Aussie market was up 0.19% with turnover was just above $5.9bn. S&P/ASX200 closed at 5634.6, up 10.80 points.
Macro Events: Tonight – EU June industrial production, UK July jobless claims, US July advance retail sales, US FOMC meeting minutes. Tomorrow – Asciano, CFS Retail Preoprty Trust, Super Retail Group, Transpacific, Origin Energy, AMP, Tatts Group, Mirvac Group, iiNet, Treasury Wine, Sydney Airport, Fortescue Metals, ASX Ltd report earnings; New Zealand, August consumer confidence, EU Q2 GDP, Germany Q2 preliminary GDP report, US June business inventories.
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