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Rudi’s View: A New Era For FNArena

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Nov 05 2020

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

In this week’s Weekly Insights:

-A New Era For FNArena
-Snippet 1: It’s A Pause, Not A Break
-Snippet 2: Contain Your Expectations
-Snippet 3: Santa Not Coming Out This Year?
-Snippet 4: Banks Increasingly Back In Focus
-Snippet 5: M&A Is Back!
-Snippet 6: No Enthusiasm From Citi For Equities
-Conviction Calls

By Rudi Filapek-Vandyck

A New Era For FNArena

October 2020 marks an important pivot in the 18-year-old history of FNArena; we have changed the business model in that we are sharing more information and data with external visitors.

Paying subscribers won’t miss out because we are upgrading the service as a whole, and by “upgrading” I am referring to serious expansion of available data and market insights.

The month past has already seen the website adding major ASX indices and constituents, plus a series of incremental changes that might not have been spotted by many just yet.

More is in the pipeline. Much more. On my prediction, come early next year many among you will be thinking I now have access to a much broader, and better, service.

In the meantime, we’ll continue adding new features and additions in the continuous, staged roll-out of our expansion plans.

Some of the new additions are already there to be enjoyed, whether you are a paying subscriber or not (you will still notice the difference if you are paying).

Anyone looking for information on Australia’s top share market indices, whether that is the ASX20, the All-Ordinaries or any index in between, might as well consider the FNArena website their go-to destination from now onwards.

The easiest way to access these indices is through the new footer near the bottom of the website (scroll down until the very end):

We’ve also built a second route via the drop-down menu near the top of the website, starting from ANALYSIS & DATA:

No more double-guessing who’s in what index and who is not.

We have also opened up FNArena Windows, essentially our own methodology for grouping ASX-listed companies together in peer-comparable sectors and subsectors.

The addition and expansion of both services has already led to more data and info becoming available through Stock Analysis.

And yet, we are still in the early stage of expansion. The coming weeks shall see more companies, more information, and more data being added.

If you haven’t already checked out these new additions, I’d like to invite you to try them out, and explore. Keep in mind: there’s a lot more in the pipeline waiting to become public.

By early next year we anticipate we’ll be a lot further in this expansion process, but nothing should stop you from exploring and enjoying what has already been added.

Don’t be afraid to ask questions or provide constructive feedback: info@fnarena.com

Watch this space because these are truly exciting times. FNArena is growing into the next phase and we all stand to benefit from it.

Snippet 1: It’s A Pause, Not A Break

The team of global quant and derivatives strategists at JP Morgan have repeated their ongoing positive stance on US and global equities post this week’s US elections.

What might surprise a few readers is not only does the team view general hesitance ahead of November 3rd as nothing but a pause, with the equity bull market expected to resume in a while, but the projection is for 50% more upside “over the medium to longer term”.

That forecast, explains their latest strategy update, is “based on our most holistic metric of equity positioning metrics, which links the equity upside to debt and liquidity creation”.

I think, if I am reading that last part correctly, it means something along the lines of times will remain tough, and thus accommodative policy settings are here to remain for much longer, which translates into ongoing (strong) upside for equities.

No surprises here; the advice to investors is to treat any correction in the short term as a buying opportunity.

Snippet 2: Contain Your Expectations

Shaw and Partners Chief Investment Officer (CIO) Martin Crabb points out history suggests share market returns underperform during times when the US votes for its president.

Since 1928, there have been 23 elections and the average return for the S&P500 has been 1.46% for the three months leading into the election, followed by 1.03% on average post the elections.

These performance numbers compare with 1.86% for both three-month periods, apparently.

This year, the 1.97% performance has beaten the historical average pre-election, but Crabb points out there is a rather weak relationship between performances prior and after the election.

He thinks investors better prepare for a “muted” performance over the three months ahead.

Snippet 3: Santa Not Coming Out This Year?

In the global battle to find the symbol that best resembles the economic picture post initial impact from the pandemic, Citi strategists have come up with the square root symbol, which is probably not what financial markets are contemplating while focusing on the US election this week.

Question number one: whose memory is still active enough to remember what the square root symbol looks like? (Or am I now underestimating my readership?)

To recap: thus far the following economic recovery scenarios have been put forward: V, W, L, U, K and the Nike Swoosh. Now Citi has added the square root.

Citi strategists don’t seem excited about the immediate outlook for equity markets. Their own data-analysis confirms work done by Shaw and Partners (see above) in that share market performances tend to be below average during election years this part of the calendar year.

The strategists also note yield on the 10-year government bond in the US has been on the rise, which weighs on valuations, in particular for those all-important growth stocks on Wall Street.

Citi’s proprietary Panic/Euphoria model is indicating market sentiment is firmly in euphoria territory; traditionally an indication of weak returns ahead, if not a share market correction.

The strategists equally worry about general positioning whereby too many portfolios are all skewed towards the same share market outperformers.

Combining all these factors together, Citi suggests investors should pare back their expectations, possibly prepare for the absence of the traditional Santa Rally to finish the calendar year.

Oh No!

Snippet 4: Banks Increasingly Back In Focus

JP Morgan’s monthly survey on domestic fund managers shows the industry has been re-weighting portfolios towards cyclicals since July.

Financials saw the largest up-weight in portfolios during September and this equals the major banks attracting more buying interest.

Interestingly, whereas cash continues to fall (to the lowest level in 31 months) the average manager is still underweight domestic banks, suggesting there could be a lot more in store yet, suggests JP Morgan.

Westpac ((WBC)) crowned itself to most prominent turn-around story, at least as far as market positioning by domestic fundies is concerned, but -apparently- the title of most loved ASX-listed stock goes to… Aristocrat Leisure ((ALL)).

Snippet 5: M&A Is Back!

From Coca-Cola Amatil ((CCL)) to Link Administration ((LNK)) to AMP ((AMP)); being a badly run underperformer is no longer a black mark as it increasingly means you can become the next target for take-over or merger proposals.

Morgan Stanley believes M&A activity in Australia has troughed and investors should expect more deals and proposals to be revealed.

On its analysis, prime candidates to attract interest from potential suitors include Mayne Pharma ((MYX)), Nufarm ((NUF)), Southern Cross Media ((SXL)), Bravura Solutions ((BVS)), Infomedia ((IFM)), Iress ((IRE)), Monash IVF Group ((MVF)), and Elmo Software ((ELO)), among others.

In the resources sector, Orocobre ((ORE)), MACA ((MLD)), South32 ((S32)), Origin Energy ((ORG)) and Whitehaven Coal ((WHC)) have been identified as most likely targets.

Among Financials & REITs, the broker’s analysis points to Vicinity Centres ((VCX)), GPT Group ((GPT)) and Dexus Property Group ((DXS)), closely followed by Challenger ((CGF)), Flexigroup ((FXL)) and Navigator Global Investments ((NGI)).

Morgan Stanley has also looked into who might be most likely to launch the next acquisition proposal with BlueScope Steel ((BSL)), Data#3 ((DTL)), Afterpay ((APT)), Xero ((XRO)) and NextDC ((NXT)) considered to have superior characteristics for an active M&A policy.

Snippet 6: No Enthusiasm From Citi For Equities

One interesting statistic was published recently by Citi strategists: US equities only weaken some 22% of the times, so historically there is not much to be gained from positioning for a weaker US share market.

Having said so, pullbacks of -10% are not unusual in the bigger scheme of things and if investors manage to avoid those, and buy back in during the recovery, a big boost to average investment returns can be achieved.

Strategists at Citi cannot get excited about equities, so maybe a pullback of -10% could be the best thing to happen for investors?

In the US, Citi strategists have a year-end target of 3300 for the S&P500 (not far off from where the index is now) and no more than 3600 for mid-2021.

In Australia, Citi’s targets for the ASX200 look equally modest with 6200 forecast by mid next year; no more than 250 points above where the index closed on Monday.

Conviction Calls

Stockbroker Morgans has updated its list of Best Ideas by adding Jumbo Interactive ((JIN) and Regis Resources ((RRL)) while removing Coca-Cola Amatil with the latter receiving a take-over proposal from its European peer last month.

As indicated earlier, Morgans isn’t exactly shy when it comes to promoting undervalued stocks on the ASX with the Best Ideas list comprising of no less than 48 stocks, ranging from Aristocrat Leisure and Coles ((COL)), to Sydney Airport ((SYD)) and APA Group ((APA)), to Adairs ((ADH)) and Zip Co ((Z1P)), Redbubble ((RBL)), and People Infrastructure ((PPE)).

****

Another team of market strategists that isn’t shy when drawing up a list of buying suggestions works at Canaccord Genuity.

Over there, the similarly labelled list of Best Investment Ideas contains 37 names, spread out over 16 sectors with separation of large caps from mid caps and small caps.

Canaccord Genuity’s list has added Aurizon Holdings ((AZJ)), Downer EDI ((DOW)), Insurance Australia Group ((IAG)), Lendlease ((LLC)) and Spark Infrastructure ((SKI)) while removing Ansell ((ANN)), Boral ((BLD)), Goodman Group ((GMG)), Nine Entertainment ((NEC)) and Sonic Healthcare ((SHL)).

The strategists make a point in that stocks that have been removed are not necessarily sells and investors currently owning those stocks should consider retaining them.

Canaccord Genuity’s primary focus is usually among small cap stocks so it might be interesting to note the updated list contains eight small cap names; Perenti Global ((PRN)), City Chic Collective ((CCX)), Redbubble, Macquarie Telecom Group ((MAQ)), MNF Group ((MNF)), NextDC ((NXT)), Betmakers Technology Group ((BET)), and Abacus Property Group ((ABP)).

(This story was written on Monday 2nd November, 2020. It was published on the day in the form of an email to paying subscribers, and again on Thursday as a story on the website).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's – see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: info@fnarena.com or via the direct messaging system on the website).

****

BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS

Paid subscribers to FNArena (6 and 12 mnths) receive several bonus publications, at no extra cost, including:

– The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
– Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
– Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
– Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow.
– Who's Afraid Of The Big Bad Bear? eBook and Book (print) available through Amazon and other channels. Your chance to relive 2016, and become a wiser investor along the way.

Subscriptions cost $440 (incl GST) for twelve months or $245 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index.php/sign-up/

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CHARTS

ABP ADH ALL AMP ANN APA APT AZJ BET BLD BSL BVS CCL CCX CGF COL DOW DTL DXS ELO FXL GMG GPT IAG IFM IRE LLC LNK MAQ MLD MNF MVF MYX NEC NGI NUF NXT ORE ORG PPE PRN RBL RRL S32 SHL SKI SXL SYD VCX WBC WHC XRO Z1P

For more info SHARE ANALYSIS: ABP - ABACUS PROPERTY GROUP

For more info SHARE ANALYSIS: ADH - ADAIRS LIMITED

For more info SHARE ANALYSIS: ALL - ARISTOCRAT LEISURE LIMITED

For more info SHARE ANALYSIS: AMP - AMP LIMITED

For more info SHARE ANALYSIS: ANN - ANSELL LIMITED

For more info SHARE ANALYSIS: APA - APA GROUP

For more info SHARE ANALYSIS: APT - AFTERPAY LIMITED

For more info SHARE ANALYSIS: AZJ - AURIZON HOLDINGS LIMITED

For more info SHARE ANALYSIS: BET - BETMAKERS TECHNOLOGY GROUP LTD

For more info SHARE ANALYSIS: BLD - BORAL LIMITED

For more info SHARE ANALYSIS: BSL - BLUESCOPE STEEL LIMITED

For more info SHARE ANALYSIS: BVS - BRAVURA SOLUTIONS LIMITED

For more info SHARE ANALYSIS: CCL - COCA-COLA AMATIL LIMITED

For more info SHARE ANALYSIS: CCX - CITY CHIC COLLECTIVE LTD

For more info SHARE ANALYSIS: CGF - CHALLENGER LIMITED

For more info SHARE ANALYSIS: COL - COLES GROUP LIMITED

For more info SHARE ANALYSIS: DOW - DOWNER EDI LIMITED

For more info SHARE ANALYSIS: DTL - Data#3 Limited

For more info SHARE ANALYSIS: DXS - DEXUS

For more info SHARE ANALYSIS: ELO - ELMO SOFTWARE LIMITED

For more info SHARE ANALYSIS: FXL - Flexigroup

For more info SHARE ANALYSIS: GMG - GOODMAN GROUP

For more info SHARE ANALYSIS: GPT - GPT GROUP

For more info SHARE ANALYSIS: IAG - INSURANCE AUSTRALIA GROUP LIMITED

For more info SHARE ANALYSIS: IFM - INFOMEDIA LTD

For more info SHARE ANALYSIS: IRE - IRESS LIMITED

For more info SHARE ANALYSIS: LLC - LENDLEASE GROUP

For more info SHARE ANALYSIS: LNK - LINK ADMINISTRATION HOLDINGS LIMITED

For more info SHARE ANALYSIS: MAQ - MACQUARIE TELECOM GROUP LIMITED

For more info SHARE ANALYSIS: MLD - MACA LIMITED

For more info SHARE ANALYSIS: MNF - MNF GROUP LIMITED

For more info SHARE ANALYSIS: MVF - MONASH IVF GROUP LIMITED

For more info SHARE ANALYSIS: MYX - MAYNE PHARMA GROUP LIMITED

For more info SHARE ANALYSIS: NEC - NINE ENTERTAINMENT CO. HOLDINGS LIMITED

For more info SHARE ANALYSIS: NGI - NAVIGATOR GLOBAL INVESTMENTS LIMITED

For more info SHARE ANALYSIS: NUF - NUFARM LIMITED

For more info SHARE ANALYSIS: NXT - NEXTDC LIMITED

For more info SHARE ANALYSIS: ORE - OROCOBRE LIMITED

For more info SHARE ANALYSIS: ORG - ORIGIN ENERGY LIMITED

For more info SHARE ANALYSIS: PPE - PEOPLE INFRASTRUCTURE LTD

For more info SHARE ANALYSIS: PRN - PERENTI GLOBAL LIMITED

For more info SHARE ANALYSIS: RBL - REDBUBBLE LIMITED

For more info SHARE ANALYSIS: RRL - REGIS RESOURCES LIMITED

For more info SHARE ANALYSIS: S32 - SOUTH32 LIMITED

For more info SHARE ANALYSIS: SHL - SONIC HEALTHCARE LIMITED

For more info SHARE ANALYSIS: SKI - SPARK INFRASTRUCTURE GROUP

For more info SHARE ANALYSIS: SXL - SOUTHERN CROSS MEDIA GROUP

For more info SHARE ANALYSIS: SYD - SYDNEY AIRPORT HOLDINGS LIMITED

For more info SHARE ANALYSIS: VCX - VICINITY CENTRES

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION

For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED

For more info SHARE ANALYSIS: XRO - XERO LIMITED

For more info SHARE ANALYSIS: Z1P - ZIP CO LIMITED