Australia | May 30 2014
By Mathan Somasundaram, Baillieu Holst Quant Strategy
Summary: Aussie market was negative again on Iron Ore decline despite better global sentiment. Banks continue to hold the index up while miners saw more profit taking. Equities remains the only game in town and Yield is the only thematic that needs attention given the low global growth and low global interest rate environment expected to last well into 2015. We turned positive in the short term on May 22nd with China data beating expectations, US data continuing to point towards sustainable recovery and domestic market pricing in low consumer sentiment and budget worries. Be aware that we are headed for tax loss selling period where substantial underperformers are likely to see more pain as investors dump them on the market. Aussie market closed down 0.49%. Turnover just above $7.1b. At the close, Asian markets were mostly negative.
Currency Outlook: We maintain our view that AUDUSD will remain 87-94 cents in the short term and then track down to mid 80s. We need to see substantial US or China growth risk for currency to break the recent trading pattern…now 93.13 cents.
Macro Events tonight: US Chicago Purchasing Manager for May, University of Michigan confidence for May.
LONG TERM MARKET CALL => Bull market to 6500 in 2 years on 16th May 2013
SHORT TERM MARKET CALL => BUY on 25th Mar 2014 => SELL on 11th Apr 2014 => BUY on 22nd May 2014
THEMATICS WE LIKE => QUALITY, YIELD, EARNINGS CERTAINTY, MOMENTUM, CONSTRUCTION, FOOD, ONLINE, MEDIA, TELCO
FUNDING SOURCE => INSURANCE, DISCRETIONARY RETAIL, MINING SERVICES
POINTS OF INTEREST BY SECTOR:
• Energy stocks were mainly flat. Big moves> UP: COE (+5%), SEH (+3%); DOWN: RFE (-5%)
• Material (Ex Mining) stocks were negative. Big moves> DOWN: TFC (-4%)
• Mining (Ex Gold) stocks were negative. BHP and RIO were down 1.3%. Big moves> UP: SDL (+10%) on Wal King
appointment as deputy chair, IMD (+5%); DOWN: LYC (-18%), AGO (-5%), ARI (-4%)
• Gold stocks were positive. Big moves> UP: TRY (+4%), RSG (+3%), SLR (+3%); DOWN: SBM (-13%)
• Industrial stocks were mainly negative. Big moves> UP: MXI (+7%); DOWN: MIN (-4%)
• Consumer stocks were mainly flat. SXL (+1%) dropped close to $1 after trading update and short covering closed it up
10% from the lows. Big moves> UP: BBG (+7%), ISU (+7%), FWD (+3%); DOWN: WEB (-6%), DSH (-4%)
• Staple stocks were slightly negative. SHV up 2%…more to come with Asian need for healthy protein. Big moves>
DOWN: TGR (-5%) on 26.5m shares were traded from Pacific Andes to Institutional Investors
• Healthcare stocks mainly flat. Big moves> DOWN: PBT (-9%), SPL (-9%)
• Financial stocks were slightly negative. Big moves> DOWN: GDI (-4%)
• IT stocks were mostly positive. Remain big fan of CRZ (+2%) and IPP (-1%) in the long term. Big moves> UP: ALU
(+3%), SMX (+3%); DOWN: SLX (-7%)
• Telco stocks were mainly flat. Do you have enough TLS (-1%)? Never too late to get more. Big moves> UP: NXT (+10%)
on the back of an increase in substantial holding
• Utility stocks were slightly negative. Big moves> None
• Overall negative day on good volume before the weekend…market still lacking any real conviction to break above recent highs
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