Australia | Aug 21 2014
By Mathan Somasundaram, Baillieu Holst Quant Strategy
Summary: Aussie market popped up 0.8% in the morning and then gave it all up. Market now trading at similar stretched valuations as early July when we went negative short term. We maintain our short term negative view from yesterday with negative China PMI data out today. We expect Friday to be a negative day as the market is unlikely to increase exposure going into the weekend at the current risk/return mix. We have not seen any substantial earnings upgrade in the large caps to change the valuation bands while the market has bounced from the lows in mid-August when we turned short term positive. We continue to remain positive long term, but short term bumps are expected when market runs too far ahead of reality.
The day started weird enough with News Corp taking legal action to block other news media from releasing illegally obtained data about News Corp…the irony in this situation set the tone for the rest of the day. Local political drama continued today with government attempting to sell the new security laws without making it look like profiling by race/religion. The methodology and the sales pitch was as good as the budget….enough said. AMA was kind enough to offer a compromise to the government on the co-payment with concessions granted to pensioners and children under certain age…the problem with this suggestion is that the government’s revenue model was based on those two categories delivering the bulk of the income…nice one AMA.
Clive has not delivered anything today…we’ll wait for the next episode of “What will Clive do?”…who needs Putin!!!
Trading idea of the day: Cardno (CDD)…we have been positive on this stock since the selloff in early Aug to below $6…now $6.66…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 0.08% with turnover was just below $6.5bn. S&P/ASX200 closed at 5638.9, up 4.30 points.
Macro Events: Tonight – EU Q2 GDP, Germany Q2 preliminary GDP report, US June business inventories. Tomorrow – Santos, Iluka, Sims Metal, IOOF, QUBE Holdings, Federation Centres report earnings; EU August consumer confidence, US July existing home sales, US July leading index, US August Philadelphia Federal business outlook.
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