The Overnight Report: That’s All, Folks!

Array
(
    [0] => Array
        (
            [0] => ((AMC))
            [1] => ((MMS))
            [2] => ((TLS))
            [3] => ((APN))
            [4] => ((RIO))
        )

    [1] => Array
        (
            [0] => AMC
            [1] => MMS
            [2] => TLS
            [3] => APN
            [4] => RIO
        )

)

This story features AMCOR PLC, and other companies.
For more info SHARE ANALYSIS: AMC
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck

US equities closed near their highs for the day. The Dow gained 61.91 points, 0.51%, to 12,169.65. The S&P500 lifted 10.28 points to once again approach the 200 moving average line at 1254 and the Nasdaq jumped 0.83% to 2599.45.

It is possible we are witnessing a major turning point for US company profits? Analysts have calculated there have been nearly 100 negative surprises in recent weeks from the likes of Intel and Oracle and these have been offset by only 25 positive surprises. Last night it was Bed Bath & Beyond's turn to miss market estimates and the shares price tanked some 7% in response.

Bed Bath & Beyond is no Oracle, whose share price continues to do it tough. Investors instead drew guidance from increased optimism in Europe and from better than expected economic data in the US. Thursday thus marked a Risk On session on very light volumes.

Note that last night, the European System Risk Board (ESRB) warned risks for Europe’s financial system have intensified. Problems in the euro zone bond markets and deteriorating confidence in European banks are coupled with worsening prospects for growth as banks seek to meet the core Tier 1 capital ratio requirement and governments implement austerity measures. As this didn't really surprise anyone, most investors simply shrugged their shoulders and decided to revisit this theme in the new year.

Investors (read: those not yet on holidays) have decided that increased liquidity efforts by the ECB must have a positive impact, somehow, somewhere. They thus started buying equities in Europe, which translated into a general Risk On environment. Somewhat ominously, gold failed to capitalise on the anti-USD sentiment.

Along the way, Q3 GDP growth for the UK was revised upwards, beating market expectations. Later on, during the Wall Street session, it turned out weekly jobless claims again proved better-than-expected, which added more fuel to the generally positive sentiment. Q3 GDP for the US, however, was further lowered to 1.8%, but nobody cared really, as the Q4 number will look better.

A survey into US consumer sentiment proved better than expected too. There is no progress being booked in the political stand-off between Republicans and Democrats concerning the extension of tax benefits. This is seen as being important to keep the positive momentum going for the economy next year, but as said, there was only attention for the positive side of life.

SPI futures are signaling a positive day in Australia on what will be a half-day only, with early indications the market is poised to open more than 1% higher.

The yield on US 2-year Treasuries rose 0.4 bps to 0.273% and the 10-year yield fell 1.1 bps to 1.950%. Most metals were higher, though nickel and zinc, just like gold, failed to capitalise. Euro and AUD, as did most currencies, rallied against the USD.

Meanwhile, those who stuck to commodities this year have had a rough time, and that's probably putting it mildly. With the exception of gold and crude oil, little seemed to work for long this year and even then one would have to had the timing right for those two as well.

The result is that some ardent commodity bulls will be forced to eat humble pie at the end of the year. Many won't even have a job next year. Last week, Crédit Agricole SA announced it was closing its commodities-trading business, while US commodity producer and trading house Cargill has cut 125 jobs in its metals, energy and transport desks world-wide.

In the UK, rumours have it that Barclays, one of the long faithful when it comes to commodities, has suffered many hundreds of millions of losses on positions in copper, nickel and aluminium this year and repercussions will be forthcoming with heads of the trading divisions likely on the block.

I have maintained a long standing criticism of market commentary and media reports in Australia, which I think is too focused on China and on China alone, turning the Middle Kingdom into some kind of a mythical force that will come to the rescue (it has to!) whenever us mortal human beings run out of options to keep the world turning around its axis.

This is why I very much liked a recent analysis by analysts at CIBC, which centres around the four BRIC countries, Brazil, Russia, India and China, and how all four of them have experienced their best decade ever in the past ten years. It was the BRICs' stimulus and domestic resilience that helped global growth get back on its feet post the 2008 meltdown and it has been the BRICs higher than average commodities intensity of growth that has ushered in a new era for natural resources and energy.

Alas, for metals and energy enthusiasts, each of the four BRIC countries is now on the path of slowing growth, with India potentially facing a very tough year ahead and with Brazil growing at about half the speed it did in 2010. A changing political landscape in Russia is again causing capital to leave the country and China is trying to prevent a bubble in property to balloon further while protecting its banks from suffering too many bad debts.

The underlying message here is to not simply expect a repeat of 2009-2010 once the Europeans have cleared their task list.

The good news is that what worked so successfully for these BRIC countries over the past decade -increasing exposure to international trade- is being copied elsewhere and with similar results. So already a new generation of BRICs is waiting to step into the limelight. Goldman Sachs, who originally introduced the acronym BRICs, has already tried to launch a new catchy acronym for the next generation of growth engines: MIST (comprising of Mexico, Indonesia, South Korea and Turkey).

For others, such as CIBC, this new acronym is too narrow. Countries such as Qatar, Nigeria, Vietnam, Uganda and the Philippines equally deserve global investors' attention, CIBC analysts suggest. All this fits in nicely with predictions the decades ahead will represent a new era of never before seen expanding volumes in global trading of goods and services.

It's the new mega-trend and it is going to make the world increasingly intertwined and interdependent.

For investors, the challenge lies into not moving too early in what is arguably still an early days development. A stark reminder has come this year with companies specialised in solar technology tripping over each other… on their way to the corporate graveyard as China is showing its (lowly priced) muscle.

The bottom line: nobody invests in an economy or in a mega-trend. Investments are made in individual assets and in individual companies. That's where actual returns are made, and lost.

What the past decade has shown is that nothing in life moves in a continuous, uninterrupted line. Fast money flows and leverage turn smaller movements into gi-gan-tic waves. Volatility is here to stay. Timing has become paramount. Better not to be too religious about anything.

For an institution with such an overwhelming focus on emerging countries and on resources, it will probably come as a surprise to most of you, but CIBC clientele have been advised to stay overweight equities, but with a defensive focus. As I stated earlier, timing is important and investors better not confuse religion with investment strategies. Analysts at CIBC agree.

I have been receiving questions from readers and subscribers these past days about where exactly I stand amidst all the often conflicting outlooks and predictions that have been included in the Overnight Report since December 13. To go straight to the core: I don't think anyone genuinely knows what lies ahead for 2012 which is why, to my observation, the dispersion and variety in predictions this year is as wide as I have ever witnessed them.

There are simply too many moving parts, too many risks and too many "what ifs" to come up with anything that carries at least some degree of confidence and conviction. Having said all this (and it definitely is good to keep this in mind), my own ideas and instincts are close to what market strategists at UBS put on paper at the end of November. Which is why I kept the UBS view for last in this series.

UBS strategists don't believe 2012 will bring a re-rating for equities overall, even though they are suggesting there might be more clarity and hope towards the end of the year when investors can possibly look forward to a more promising outlook for 2013. For now, however, the outlook for global economies and events lacks clarity with austerity, de-leveraging and political processes all playing their part in this muddling through exercise.

Similar to CIBC and others, UBS advocates investors stay on the safe and defensive side. UBS suggests investors should be looking for quality, transparency in sustainable growth and for solid, growing dividends. Those who have read my analyses this year, and my e-booklet "The Big De-Rating" (sorry, paying subscribers only) instantly know why I feel so connected to the UBS view; it's what I have been suggesting since late 2010 and I still don't see any reason as to why this strategy/market approach should be altered or abandoned.

About two months ago, I started pointing out that many of the companies that fall into this category had become rather expensively priced. Which falls in line with observations made by other market analysts, that defensive assets are no longer cheap and there's an ever shrinking supply of truly defensive assets across the world.

Which is why it is so important for investors to know what to look for and to wait until the right price presents itself. Take one of my personal favourites for the year, Campbell Brothers ((CPB)). Investors could have bought the shares for $40 or for $54, and that's just over the past four months. The same "timing" issues (or should that be "valuation"?) can be highlighted for the likes of Domino's Pizza ((DMP)), Coca Cola Amatil ((CCL)), Monadelphous ((MND)), Amcor ((AMC)) and McMillan Shakespeare ((MMS)) – all companies that featured regularly in my writings since late last year, and they have all performed very well.

I did underestimate that Ardent Leisure ((AAD)) was going to experience a year of negative growth this year, which is why the share price has fallen as far as it has, but the high dividend yield is still on offer, and remains attractive, in my view. Telstra ((TLS)) post-February has performed splendidly.

I also underestimated the challenges that keep on haunting APN News & Media ((APN)) and want to formally apologise to anyone who has lost money on the suggestion published earlier in the year. Fund managers en masse sold out in fear the stock was to be dropped from the ASX200 and this, of course, quickly became a self-fulfilling process. Another lesson has been learned.

I read somewhere the odds for picking a "winner" in the ASX200 this year have been 3-to-1 in favour of the House (thus against investors). However, look at the two dozen or so stocks that have been featuring regularly in my writings this year and nearly all of them are concentrated in the small group that performed well for investors. I can only hope it has benefited subscribers (as I know you are also reading commentators and experts elsewhere who have been directing your attention towards other names).

Back to UBS, the outlook for 2012 remains one best summarised as "weaker for longer" with UBS predicting global growth will decelerate in the year ahead and growth in corporate profits will be lower too with slim chances for corporate profit margin expansion. This will keep a lid on PEs and keep doubts and questions alive about the potential downside for economies in the US, Europe and China.

Not an environment to anticipate a re-rating for risk assets, argue the analysts. Which is why UBS advocates investors should stick with "quality" and "yield". In my personal terminology this translates into picking "all-weather performers" instead of "good weather performers".

One interesting observation from UBS's outlook is the analysts expect dividend growth to outpace profit growth in years to come. Returns on Equity will come under pressure though, which will be yet another headwind for equity valuations. While a lot of cash sits on the sidelines, and certainly many companies are flush with it, very little will find its way directly into equities in the absence of sufficient clarity about the outlook for the world economy overall, predicts UBS.

Through all this, volatility will remain a key feature in financial markets.

How investors take all this on board is entirely up to them. It is dependent on their horizon, their strategies and risk profile as well as their levels of confidence and experience. I do hope that my regular market analyses, my TV appearances and my presentations across the country have had at least some positive impact on your mind set, your strategies and, above all, your investment returns.

Leading indices in Australia are about to finish the year deeply in the red, and stocks such as BHP Billiton ((BHP)), Rio Tinto ((RIO)), Woodside ((WPL)), Santos ((STO)) and Newcrest ((NCM)) have all been falling in price since April, not to mention the carnage that has occurred among small cap miners and explorers.

I have not been in favour of owning any of these names for the whole year, and still haven't changed my mind. I am certain some of you have made some nice profits out of trading in and out of volatile miners and energy stocks and there is absolutely nothing wrong with that. For "investors" with a longer term horizon it remains important not to confuse these short term strategies with what is required for longer term survival.

Which is why in 2012 I will continue my analysis about "all-weather" and "good weather" performers (plus about a dozen other angles and quests). I hope most of you will remain on board to further enjoy the analysis, the knowledge and the insights, and to benefit through better decisions.

Below is a brief overview of the expert views and opinions I inserted in Overnight Reports between December 13 and today. This the final Overnight Report for 2011. The crew at FNArena is going to take a break. It has been another long year. We'll be back on Monday, 16th January. In the meantime, Stock Analysis and other data are being kept up to date.

We continue accepting payments for subscriptions and our Special Christmas Promotion ($330 only) remains on offer for another two weeks. For more about it see HERE.

The following expert views have featured in Overnight Reports these past two weeks:

– Dec 13: Dennis Gartman issues an accurate warning about pending sell-off in gold

– Dec 14: Richard Coppleson (GS Insto desk): bullish because of cash re-investments
JP Morgan Strategist Thomas Lee: bullish on equities
Glushkin Sheff's Dave Rosenberg: cautious, still favours S.I.R.P. (Safety and Income at Reasonable Price)

Dec 15: legendary Bob Farrell: ultra-bearish
Daniel Goulding: bearish
Clifford Bennett: uber-bullish

Dec 16: UBS on commodities: First more Pain, then Gain
Citi on equities: more pain first, gains from mid-2012
Bell Potter's Charlie Aitken: bullish (of course) with bias towards cheap riskier assets

Dec 20: Russell Investments: moderately positive
GS' Jim O'Neill: moderately positive
GS strategists in Oz: moderately positive

Dec 21: Westpac: bearish, but with relief from mid-2012
Danske Bank: Europe will surprise positively

Dec 22: Brown Brothers Harriman: muddling through
Richard Russell: ultra-bearish

Dec 23: CIBC: stay defensive (incl assessment of BRICs)
UBS: quality, defensive and yield

[Note: All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.]

Click to view our Glossary of Financial Terms