Australia | Sep 03 2014
By Mathan Somasundaram, Baillieu Holst Quant Strategy
Summary: Aussie market delivered a flat day in line with global sentiment. We continue to be negative in the short term as the markets have run too far ahead of valuation, rising geopolitical risks, China tightening, stocks going ex div, escrow shares taking marginal buying and risk of ECB not living up to market expectations. Iraq looks certain to see substantial war with the coalition of politics still trying to work out what they are going to do and how far they are going to take it. Ukraine continues to be a joke on comparable basis with sanctions and threats being thrown around like confetti.
Despite all the geo political risks, the markets are betting on Super Mario to save Euro again. ECB is likely to do some stimulus while holding some back. ECB needs individual governments to start projects and increase employment, but in the current fiscal austerity, that will be a hard mix to sell. RBA has also now joined the chorus calling for the government to curb property prices or face a bigger bubble threat later.
The mining tax repeal by freezing super is being marketed as a positive for the average man with more money in the pocket with better chance of pay rise. If you look past the spin, the winners are the corporates and the government while the loser is the average person…why? There is no chance of the average worker getting a pay rise with high unemployment and firms on cost out programs while the extra money will attract more tax as income compared to super. The more things change, the more they stay the same.
Index change announcements on Friday…MYR and ARI are potential candidates that could see buying from small cap fund managers if they get kicked out of S&P 100.
Trading idea of the day: Seven West Media (SWM) – We remain positive on SWM despite recent sell off in media sector driving it down to $1.75 today after going ex div 6 cents. The last time SWM was around this level was when it was being used as a funding vehicle to buy NEC IPO. We feel similar situation has risen with potential escrow shares in NEC coming into the market.
SWM continues to be the leading free to air channel that delivers nearly 7% fully franked yield while you wait for the cyclical recovery.
Market Move: Aussie market was down 0.04% with turnover was just above $4.2b.
Macro Events: Tonight – US auto sales, Beige Book. Tomorrow – Australia retail sales, trade balance; US trade balance, ADP
employment, factory orders; UK Bank of England rates, asset purchase target, inflation target; Japan Bank of Japan monetary
policy statement; Germany factory orders, Markit PMI.
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