Rudi's View | 5:01 PM
In today's edition:
-Inflation A Problem, Yet Again
-Don't Fight The Fed
-Shaw's Favourite Copper Exposures
-Golden favourites
-Citi's healthcare favourites
-Gaming stocks; details matter
-Interviewed By Peter Switzer
By Rudi Filapek-Vandyck, Editor
Inflation A Problem, Yet Again
The big news of the week was, of course, not that unhinged speech in front of global leaders at the United Nations general assembly or the return of late nigh host Jimmy Kimmel on American television, but the nasty inflation surprise domestically.
It pretty much cemented ongoing under-performance for the local share market vis a vis offshore peers as economists and bond traders removed the prospect of RBA rate cuts for the foreseeable future.
UBS still thinks the November meeting might see another -25bp cut, but the likes of National Australia Bank have now postponed that move to May next year. Citi is toying with the idea there may not follow any more rate cuts at all.
Without doubt, the renewed public debate puts the recovery and valuations for retailers and companies linked to consumer spending generally under the microscope.
What if the RBA will now sit on its hands for months on end? What will the recovery in consumer sentiment/spending and in property prices and construction look like?
The question is not trivial. As pointed out previously, both consumer-related companies and those leveraged to domestic building activity had been among the eye-catching winners in August and many an analyst report with positive projections in August mentioned the prospect for further RBA rate cuts to underpin those projections.
But what now?
Portfolio strategists at Wilsons weighed in on the debate this week by highlighting Wesfarmers ((WES)) and JB Hi-Fi ((JBH)) as two companies whose valuation seems bloated in the face of a recovery that might well be considered with a few extra question marks for the time being.
For this specific reason, Wilsons' Focus Portfolio has no exposure to either of the two. But there are still opportunities in the sector, the strategists assure.
Wilsons' favourites are Collins Foods ((CKF)), Autosports Group ((ASG)), and Universal Store ((UNI)). Only Collins Foods is currently included in the portfolio.
Prior to this week's CPI disappointment, analysts at Jarden had built a case centred around their thesis that the outlook for consumer spending in Austalia has never looked as favourable since covid.
That assessment involved the lagging impact from rate cuts already delivered.
Stated Jarden: "We believe the pressure is now on retailers to deliver the right product, at the right time, and at the right price, while engaging customers effectively".
If Jarden's assessment proves correct, the upcoming AGM season should deliver confirmation through trading updates.
ASX favourites include Sigma Healthcare ((SIG)) for defensive growth, Harvey Norman ((HVN)) for home goods, and Flight Centre ((FLT)) "the laggard that could materially outperform".
Jarden is least keen on Endeavour Group ((EDV)), Domino's Pizza ((DMP)), Kogan ((KGN)), and Guzman Y Gomez ((GYG)).
Don't Fight The Fed
Investors worried about valuations, investor exuberance or what might possibly be decided next at the White House should take a leaf from history, analysis by the Franklin Templeton Institute suggested this week.
That analysis suggests whenever the Federal Reserve resumes cutting interest rates, those who stay invested will be rewarded, even though shorter-term volatility should be expected.
The one statement from the report that summarises it nicely: Equities thrive on easing financial conditions and have historically moved in line with them.
Apart from Don't fight the Fed, the report also adds buy the dip remains one key lesson for investors.
Shaw's Favourite Copper Exposures
The price of copper has almost literally taken the elevator higher over the past number of weeks and with production problems emerging at one of the world's largest sources of supply (Indonesia's Grasberg) there could be a whole lot more enthusiasm awaiting for mining companies offering exposure.
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