Asset Allocation
James Gerrish

A weaker session today across the board with Asian markets trading in the red for much of the day, Hong Kong down around ~1.3% the hardest hit in the region while US Futures opened fairly flat, before sellers came in around lunchtime. Relative to yesterdays close, Dow Futures were down around ~70points during our time zone – certainly not a huge move in any respect however a negative influence all the same. The Aussie market actually tried to stay above water early before starting to drift away from around 11am  into the close. We suggested yesterday that markets were showing initial signs of exhaustion and that gained momentum today – hardly surprising that some profit taking comes in after the aggressive (low volume) bounce we’ve had from the depths of despair on Christmas Eve.

Overall, the ASX 200 closed down -31points or -0.54% to 5858. Dow Futures are currently trading down  ~100pts relative to this time yesterday.

ASX 200 Chart

CATCHING OUR EYE

Broker Moves; The notes are starting to filter out about potential capital management ahead of the likely change of Government and amendment of franking credit legislation. Those tipped to launch capital management initiatives include Woolworths Group, JB Hi-Fi, Wesfarmers and Flight Centre amongst others.  

ELSEWHERE:

  • Pact Group Cut to Neutral at Credit Suisse; Price Target A$3.85
  • Woolworths Group Downgraded to Neutral at Citi; PT A$31.30
  • Stockland Upgraded to Buy at Citi; PT A$4
  • Lendlease Upgraded to Buy at Citi; Price Target A$15.06
  • Dexus Downgraded to Neutral at Citi; PT A$11.05
  • Abacus Property Upgraded to Buy at Citi; PT A$3.91
  • Sims Metal Downgraded to Sell at UBS; PT A$8.50
  • Oil Search Downgraded to Sell at Morningstar
  • QBE Insurance Downgraded to Hold at Morningstar
  • TPG Telecom Downgraded to Sell at Morningstar
  • Flight Centre Downgraded to Sell at Morningstar
  • Saracen Mineral Cut to Sell at Baillieu Holst Ltd; PT A$1.95
  • Saracen Mineral Downgraded to Sell at Canaccord; PT A$2.40
  • Saracen Mineral Cut to Sell at Argonaut Securities; PT A$2.10
  • Wesfarmers Downgraded to Neutral at Goldman; PT A$32.50
  • Brambles Upgraded to Buy at Citi
  • OceanaGold GDRs Downgraded to Sell at Canaccord; PT A$4.30
  • St Barbara Downgraded to Hold at Canaccord; PT A$4.70

BHP Group (ASX: BHP) $32.77 / -1.3%; a soft day today, under performing peers and the market after the release of the 1st half production report. 6 months into the year, the company appears to be on track to hit guidance across the board despite being slightly behind in some areas. Petroleum production as strong, largely better than expected, while iron ore & copper came in a touch short of expectations. Iron ore was impacted by the train derailment back in November, while Copper was hit by outages at their Escondida mine.

Commentary also suggested that costs had crept up as a result of maintenance and outages, something that they expect to offset in the second after reiterating cost guidance. All in all not a bad a bad first half but some ground to make up in the second – not uncommon for BHP or other miners. We like BHP, but are looking buy at lower levels (sub $30) – and this report could be the catalyst to see BHP head lower.

BHP Group (ASX: BHP) Chart

Oil Search (ASX: OSH) $7.58 / -2.82%; Q4 production numbers out today and just like BHP, they were a tad light on.  Production of 7.5 MMboe during the period (mkt looking for around 8MMboe) was a slight miss while full year guidance for 2019 is 28-31.5 which looks okay to slightly light on. Some in the market are above that level so could come as a weak spot for a few. We’d look at OSH again nearer ~$7.20

Oil Search (ASX: OSH) Chart

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