ASX 200 closes in on 7000 (JPM, EML, PDL)

A bullish session today with the market opening higher then grinding up into the close, making another all-time closing high in the process. Clearly the market remains bullish and todays buying was broad based. We do often see strong buying in the start of January as light volumes persist, especially when December saw equities down more than 2% in what’s usually a bullish month for stocks. The last 2 years now December returns have been negative while the ground has been well and truly made up in January, however as we approach 7000, now only 38pts away some caution should be applied.
Worth remembering that the calendar year 19 performance was largely a result of P/E expansion rather than earnings growth, with the ASX 200 moving from 15x in Jan to 19x by New Year’s Eve. A similar theme played out in the US so now we need to see some semblance of earnings growth to support valuations, starting tonight as US as quarterlies kick off.

Volumes did kick up a bit today relative to yesterday as interest starts to build in the mkt again, although Sydney traffic implies still a lot away. The mining sector will be in focus as we move into the back end of January and early Feb with production reports and earnings. This remains a sector we’re bullish on following from strong outperformance in December (was the only sector that closed the month in the green). We remain overweight + Peter O’Connor at Shaw upgraded S32 to buy today, this is one we ideally want to add to the portfolio.

Overall, the ASX 200 added +58pts / +0.85% today to close at 6962. Dow Futures are trading flat

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE

US Reporting Starts: Quarterly reporting kicks off in the US tonight with a few names we’re interested in out with 4Q19 numbers. Citigroup are expected to deliver Earnings Per Share (EPS) of 1.835 with guidance expected of 2.12 for 1Q20, while JP Morgan which we hold in the MM International Equities portfolio is also out with results. EPS for the quarter forecast to be 2.359 rising to 2.66 for 1Q20, or in other words, earnings growth of 13%. Look out for tomorrow mornings international note for more details / views here.

JP Morgan Chart

EML Payments (EML) +7.17%; one of last year’s best performers, the payments software and tech company caught a bid again today, trading higher from the get-go after announcing it had signed an agreement with NSW Health to provide its General Purpose Reloadable card program for nearly 50k employees. Although the contract hasn’t been deemed material under listing and EML hasn’t changed guidance, it further solidifies their software as the leading platform for salary packaging. The cards are used by employers for pre-tax living expenses and puts EML on track to reach their target of 300,000 customers by early next year.

EML Payments (EML) Chart

Pendal (PDL) -5.12%; the fund manager saw shares slide today on the back of another round of FUM outflows across the group in December. Despite the recall of funds from clients, FUM managed to climb 1% to $101.4b thanks to a strong market tailwind. One positive sign was a net inflow into UK funds, likely on the back of Boris Johnson’s big election win driving investor confidence. Despite all of this, Pendal said that the outflows would have an annualized impact of $8.9m to fee income, nearly 2% of FY19 revenue. A disappointing outcome for December and it’s likely to drive downgrades from here. We own the stock from lower levels, but today’s update was a weak one. Now on review. It’s cheap but momentum now an issue. It wasn’t all bad news though, money seemed to move into the Janus Henderson (JHG) which we also own.

Pendal (PDL) Chart

Broker moves;

· Orocobre Cut to Underweight at JPMorgan; PT A$2.55

· Independence Group Cut to Underweight at JPMorgan; PT A$5.70

· Fortescue Cut to Neutral at JPMorgan; PT A$11

· Netwealth Raised to Buy at Citi; PT A$9.60

· Seven Group Cut to Neutral at JPMorgan; PT A$21

· Downer EDI Raised to Overweight at JPMorgan; PT A$9.50

· South32 Raised to Buy at Shaw and Partners; PT A$3

· Iluka Raised to Buy at Shaw and Partners; PT A$10

· Sandfire Cut to Sell at Goldman; PT A$5.20

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