Mathan Somasundaram

BOEQ Footy Finals picks…just for fun!!! NRL and AFL are heading to the final series in September/October. We have attempted to model each team’s response to their potential opposition using the regular season performances. Since the model is based purely on their performance data, it provides a statistical view of... Show More

Mathan Somasundaram

Local market fell on the open and then made a slight recovery as North Korean missile test launch through Japanese airspace killed off the weak overnight global market sentiment. North Korean launched another test missile through Japanese airspace according to South Korea…more ammunition for risk off trade to remain in... Show More

Economists have been forecasting RBA rate rises since 2014. Funny that it may come true when the property market has started to roll over. Sadly I think RBA is stuck and I can't see them moving till they have to...and that could be longer than most expect as US Fed, ECB and BOJ continue to play currency musical chairs.

On Oz Construction Cycle: The Impact Is Now -

In a market where bottom up investors have struggled to deliver outperformance, momentum models (like technical analysis) have allowed investors to better time the entry and exit points. I found that an integrated multi-style approach (i.e. including momentum) seems to smooth out big swings in the market. The macro risk in global trade and Euro issues may be the catalyst that drives the profit taking.

On Technicals - Dow Jones - at same overbought levels as in 2007 and 1999 -

Sure....I think that has played a decent part in their growth. What we are seeing with China is that they realized that they needed to grow the overall growth pie by helping the infrastructure and industrialization boom in all these countries. We are seeing this in large parts of South America and Africa as well as other Asian countries like Singapore, Malaysia, Indonesia, Sri Lanka and even Pakistan of late. The capital investment driven by China is helping these countries to attract more external investment capital to make the next energy, infrastructure and industrialization steps. As we have seen in the past, when these countries make these steps forward, they create bigger middle class which drives more consumption. China's global strategy has moves to growing the pie than taking a bigger slice of a declining pie.

On Sunset Strip | Aussie Afternoon Institutional Market Wrap -

Agree....I like gold in the long term portfolio hedge basis, but on the commodity price perspective, we are likely to see oil outperform gold in the next 6 months.

On Grossly Unintelligent! -

Funnily enough market can get too negative from too positive region after a few sentiment killer articles. Banks are moving mainly on macro factors and they will move as US Fed changes. Banks will come back in favor as the market risk/return mix matches up. If the US Fed flags no rate changes, AUDUSD goes to 80 and RBA cuts rates...then Banks are going to move 10-20% higher. We live in a fickle world where risk and return are a relative measure that can change dramatically within a few days.

On Sunset Strip | Aussie Afternoon Institutional Market Wrap -

I agree. The VIX and the corporate profits are all pointing to market looking for a reason to fall over. FOMC flip flopping seems like a good enough trigger to push this market into another profit taking slide.

On Sunset Strip | Aussie Afternoon Institutional Market Wrap -

That has been a trend globally with demographic change, but the drop in US has been a lot higher than Australia in the same period. Even if we assume that is the case, then that sets up other issues regarding the sustainability of the US economy and debt with lower workforce. These are issues faced my all the major economies, but US as the shining star is pricing in too much optimism. US is growing, but likely to grow slower than what the market is expecting for the next year or two. This will put real pressure on US Fed to stay on the sidelines in 2016.

On Sunset Strip | Aussie Afternoon Institutional Market Wrap -

The PE bands are based on forward long term average PE as well as +/- 1 standard deviation and +/- 2 standard deviation. History tells us that market pre GFC traded just above +1 standard deviation over fair value with high interest rates and high currency. Given the current low rates and low currency, we should get close to +2 standard deviation in the medium to long term.

On Chart of the day -

The EPS Growth decline is a 5 year trend despite better balance sheet, lower cost of borrowing and lower currency. The Earnings Revision and ROE trends point to low growth outlook well into 2016. Yield premium is the trade for 2016....again!!!

On Sunset Strip | Aussie Afternoon Institutional Market Wrap -

The last time CSL traded above $100 (i.e. pre 1 for 3 split) was 17th Oct 2007 (i.e. pre GFC high for the market).

On Bets over - the race to $100 -

The great thing about technological change is that the competition will force the next step even faster. Big global disruptive firms with fancy brands always help to give exposure and drive change even faster. The tide has turned with battery technology and clean energy. Already utilities in Australia are marketing packages with solar and battery very openly. It would be logical to assume the efficiency will improve exponential in the next year or so as we have seen in solar cells. Tesla may or may not be the answer, but they definitely made the world aware of where battery technology is at and how well it can co-exist with clean energy.

On Sunset Strip | Aussie Afternoon Institutional Market Wrap -

US population compared to Australia is approx 15 times. If we are averaging around 30,000 new jobs for the past few months, on comparable basis that is like US creating around 450,000 new jobs. The reality is that US is creating half that despite it being one of the few countries on the recovery path. I am no statistician, but the relative comparison tells me that there is something wrong when economic growth is below trend, business capex is weak, consumer sentiment is weak, there is no credit growth and we are coming to the end of "once in a lifetime" commodity boom. As a broker I would love to see this kind of job recovery, but it does not add up. I could be wrong :)

On Australian unemployment rate falls -

Just to update our view on TRS: We still maintain a very negative view on the overall retail sector with domestic consumers expected to cut spending even further. We turned negative on retail staples last month as WOW decided to initiate a large scale price war. TRS is basically going to get even more pressure from the K marts, Targets and Big W’s with the race to the bottom. The key risks mentioned before like currency, budget, unemployment, competition and consumer sentiment are all still in play. If I had to pick beaten up retailers…SUL and KMD offer better risk return than TRS.

On This time last year - The Reject Shop -

History tells us that nothing with big margins ever last as the cycle turns. Iron ore cycle has turned and it does look inevitable that we will see even lower prices as Roy Hill supply comes on while smaller players hang on to dear life and burn cash. Miners only care about self interest and not about the overall damage to the business model.

On Sunset Strip | Aussie Afternoon Institutional Market Wrap -

Unemployment is the key to the consumer sentiment. I think if the currency stays above 80 cents in early 2015, we will get a cut. On the flip side if the currency falls below 80 cents then we will not get a rate cut. Retail will struggle even if you cut rates and the currency is 75 or below. If a few retailers start rolling over, then you start adding to the unemployment line and there will be a cabinet switch.

On Stevens slashes rate cut hopes, underpinning Aussie: While the language towards the currency is an escalation of jawboning seen earlier in the year, by... -

We had a sell on JBH around $20 with target price of $15 soon after the budget. Recent update and macro headwinds suggest that JBH will most likely go lower in the short term. You can't fight the macro when you are a cyclical.

On iPhone 6 leaves big mark on retail sales -

I think the uptick was mainly short covering after AGM comments. The weakness since then shows that the market is not willing to buy at these multiples given the headwinds. Even on a relative basis, DSH offers better store rollout growth story in similar space at lower multiple.

On iPhone 6 leaves big mark on retail sales -

The market is trying grapple with the move from yield to growth when there is very little growth. I don't think they are mutually exclusive. You can have good quality stocks on relatively good value with good growth and yield outlook. Once the FOMC short term risk is out of the way, market will start to trend up again. Institutional investors will be taking time off with school holidays next week while retail investors will have a bigger say. I expect we will see majority of the big caps to turn positive by the end of the week.

On Top 10 reasons why you should get back in the market (1) Market pullback has reached our S&P 300 pullback target level of 5400 (2) China has moved to stimulate... -

That is true, it is a bit like being negative on the market. Things all move in cycles, it is a matter of where you are in the cycle. House prices for me are driven by return on investment of the asset and underlying growth in real disposable income to support the asset. Once both branches are over done, I think it is a matter of time before the correction comes. If the argument is that the Chinese are parking their savings, I think US and Europe offering better risk/return than Australia. The question you have to ask is who is positive on house prices and their motives...Brokers, Governments and central banks have to hope that they hold up till the global growth picks up or it could get very messy.

On Sunset Strip | Aussie market delivered a flat day despite the positive global lead -

Quant targets are driven by relative valuation trends and macro thematics. Global growth expected to remain low while travel industry expected to remain stronger with higher currency and consumers looking for experience spending. Downgrade matters if its structural, but cyclical downgrades like this is no reason to change targets. FLT remains a top quality global growth travel stock with solid growth outlook. We expect FLT to hit $55 in the next 12mths and reach over $60 in 24mth assuming the business model and the global macro outlook remains as we expect now.

On Flight Centre (FLT) | Quant BUY ($55) - Published 22nd Nov 2013 - Nothing much has changed in this quality global travel growth story | We have changed our FLT... -

That is correct. Market does not move in straight lines and we have had a positive long term view for a few years. In the short term we see times when profit taking makes sense when return outlook is less than the risk on the back of macro, valuation or even sector switch. The red lines are the time to take profit or reduce market exposure while the green lines are when you add to your exposure.

On Equity Engineer - Jun 2014 | Central banks pushing the markets higher | We turned positive in the short term on May 22nd with China data beating expectations,... -