Australia | Nov 18 2014
By Mathan Somasundaram, Baillieu Holst Quant Strategy
Summary: Aussie market maintained the negative trend on low volume similar to yesterday despite China FTA and potential Indian FTA next year. FTA with number of the major trading partners will continue to be positive for corporates while opening up of our economy will deliver upward pressure on food prices, energy prices and unemployment while delivering downward pressure on currency, consumer spending and economic growth in the next few years.
The New Year is setting out to be a year of living frugally for consumers while for corporates its setting up as a year of improving margins through more cost cutting, price inflation, better margins and expansion regionally. Big miners are on the fast track to killing the smaller players with government subsidies and FTA. Despite expecting the largest volume of commodities to leave Aussie shores next year, we expect to see the biggest decline in resources workforce. G20 growth plans credibility did not even last 24 hours before the Japanese and European economies flagged substantial risk to global growth….anyway most if not all of the world leaders at G20 will not be around in 5 years…accountability never existed. It is always amusing that leaders who have been working on growth strategies in their own country for years can turn up for a speed date and suddenly come up with growth rate upgrades…this only happens in fairy tales and budget updates.
We continue to trade with budget measures, financial sector inquiry and commodity price collapse hanging over the markets. We see this low volume negative trend continuing well into next week….hence we suggested to take profit on Nov 6th….buckle up….this could get bumpy in the short term as 3mth moving average moves below 12mth moving average on technical basis with rising volatility….remain positive long term. RBA changed tune today….now they don’t see rising house prices as a risk. Reality is that we now have a housing bubble, but have no means of fixing it without a bit of pain….so we are going to do the American thing….kick it down the road. It is not going anywhere, it is just going to get bigger and bigger in certain areas….like the unemployment.
Market Movers: The positive trends were mainly related to bargain hunters in small cap mining…esp. gold stocks like IAU, OGC and SAR. We are turning positive on gold with global growth risk rising and spot gold just below key support level of $1190…we like NCM, NST and BDR. PBG had a good day on selling all their shoe brands to private equity to clean up their balance sheet issues. Expect private equity to flip back on the market in 2 years with 3 times what they paid for today. The negative trends were dominated by Iron Ore stocks….FAQ…NO, it is not the time to pick the bottom of Iron ore small caps…better to be late than early.
Despite uranium stocks doing well of late, PDN saw some profit taking today…worth a look for the long term punters. AGI got hammered again….we like it long term…quality gaming stock with US exposure.
Trading idea of the day: CarSales.com (CRZ) – CRZ is a global online car classified business model now moving into related financial services. It was trading below $10 and we see the stock re-rating to $12.50 in the near term as the market’s search for growth in global growth downgrades. The free cashflow generation of this model allows CRZ to keep acquiring and growing globally. Positive momentum since the AGM is being maintained with share price bouncing from below $9.50.
Market Move: Aussie market was down 0.24% with turnover was just above $3.6bn. ASX200 closed at 5399.7, down -12.80 points, or -0.24%.
Macro Events: Tonight – US producer prices, housing market index; UK CPI. Tomorrow – Australia skilled vacancies; US housing starts, building permits; UK Bank of England minutes.
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