Australia | Aug 15 2014
By Mathan Somasundaram, Baillieu Holst Quant Strategy
Summary: Aussie market had a solid positive day on the back of US positive lead and BHP demerger news. We suggested clients should buy back into the market on Monday 11th morning after the pullback with Russia retreating and markets beginning to show value. Rate cuts in South Korea, Euro growth downgrades and Japan growth issues are further evidence of low growth outlook around the world. Australia has the benefit of relatively high level of interest rates and high currency that can work as a buffer if macro conditions get substantially worse.
We do not expect a rate cut while we expect local economy to get worse before improving. RBA has always expected this scenario to eventuate and will remain cautious. Asian influence in house prices are likely to create a London/UK bubble effect where the property prices near the city remain relatively high while outer suburbs will get hit with affordability/unemployment issues. Local budget woes needs to get sorted, but the soap opera currently going from one miss step to another. Yield thematic is still the main game with low growth macro while selling out of banks and TLS are not the risk weighted move now. Regular readers would know that we suggested trimming banks to market weight and adding BHP, RIO, WOW, WES and TLS at the end of June.
Market pundits are pushing to sell Banks and TLS to buy BHP today (now trading just below $40…top of the last 2 year trading band)…but the same pundits were calling for selling BHP at $30 with imminent China crash. We continue to suggest investors to have a balanced view and stick to an equally weighted 3 pillar portfolio (i.e. Financials, Resources and Industrials).
Trading idea of the day: Carsales.com (CRZ)…we have been positive on this stock since the selloff in late Jan to $8.80…now $11.07…dropped 10% on result and now it has bounced back. Global double digit growth story maintained. Quant Target Price $12.50…more when the market starts to pay attention to the global growth outlook.
Market Move: Aussie market was up 0.32% with turnover was just above $5.0b.
Macro Events: Tonight – US July capacity utilisation, US July industrial production.
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