It’s not all bad news (MTS)

Today was the 3^rd aggressive buy day in the last 6 trading sessions and while the index is still down 8% in that time, it feels to me a meaningful low isn’t too far away. The headlines across TV screens this morning clearly rattled a few investors given the calls / texts I received early on, understandable given the Dow Jones fell nearly 13% overnight, however important to recognise that we had led this move on Monday with our own 10% decline. SPI Futures made a marginal new low just after midnight on Tuesday at 4780 before rallying ~500pts for the 2^nd time in 3 trading sessions. As we suggested this morning, this implies that buyers are ready and willing around the 4800 level to step up and buy the market aggressively.

On the SPI, the decline from the high of 7148 to the overnight low of 4780 totals 2368 points / 33.1% over 18 sessions – simply a huge move over that time period

On the market today, stocks rebounded, financials and materials led the gains hence the decent move on the index. The highest quality members of each respective sector led the gains i.e. CBA rallied +13.26% versus NAB up 6.76%, BHP up 11.94% v RIO up 6.89%.

Overall, the ASX 200 added +291pts / 5.83% today to close at 5293 - Dow Futures are trading down +649pts/+3.18%, and they were trading limit up at one stage today

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Not all bad news: Not sure about you however I’m sick of reading / listening to such doom and gloom. While we’re clearly facing a major challenge and there will be more to play out here, the constant negative rhetoric is exhausting and erodes confidence. While I’m no medical expert, nor have I called the current decline particularly well, I remain convinced that in 6-12 months’ time, the market will be in a lot better shape, and that as investors is what we need to focus on.

As we’ve been suggesting, now is the time to ‘up spec’ portfolios, get rid of the shares that you’ve held because they’re in a loss, and put together a portfolio with high quality stocks, in essence, work to improve the quality of exposures. Examples we’ve done in our own Platinum Portfolio over the last few weeks include moving from NAB to CBA, PDL to MFG, PGH & BLD into BHP, BIN & MQG, and we’ve got more work to do.

While the markets rally today barely moves the needle on the recent decline, it does show how quickly stocks will go once a bid comes into the market. In this decline traditional safe haven assets haven’t really been supported, the most obvious move has been into cash, implying that cash will hit the market at some point.

In terms of a more positive rhetoric about prevailing backdrop, China has now closed down its last coronavirus hospital as there is not enough new cases to support it while reports are that doctors in India have been successful in treating Coronavirus using a combination of drugs. Researchers of the Erasmus Medical Center claim to have found an antibody against coronavirus and a 103-year-old Chinese grandmother has made a full recovery from COVID-19 after being treated for 6 days in Wuhan, China.

While Apple and others have closed down stores globally, they have reopened all 42 china stores as the world’s second largest economy gets back up and running. In South Korea, the number of new cases on a daily basis is now declining however Italy is still a major concern, though it must be acknowledged they do have the oldest population in Europe. In Israel there are reports of a vaccine, while Canada is also claiming strong progress in Covid-19 research.

While this is an evolving situation and the headlines will get worse before they get better, it’s worth remembering that we will adapt and markets will start to look through this, and stocks will rally hard when that happens.

Supermarkets: Traded sharply higher today as brokers push through upgrades on the back of increased demand for staples. Panic buying ahead of the corona virus is estimated to have brought forward around 2 weeks of spending in supermarkets, helping contribute to an expected lift in earnings for the four main staples plays – Woolworths (WOW), Coles (COL), Metcash (MTS) and The Reject Shop (TRS). Coles hit a new all-time high today while Metcash topped the ASX200, adding 27% - we own MTS in the Income Portfolio

Metcash (MTS) Chart

BROKER MOVES:

• Woolworths Group Raised to Buy at UBS; PT A$39.70
• Metcash Raised to Buy at UBS; PT A$2.90
• Coles Group Raised to Neutral at UBS; PT A$15
• Northern Star Raised to Overweight at JPMorgan; PT A$13.50
• Suncorp Raised to Neutral at Macquarie; PT A$9.80
• Breville Rated New Buy at EL & C Baillieu; PT A$19.50
• Cochlear Raised to Neutral at Citi; PT A$196
• Sydney Airport Raised to Outperform at RBC; PT A$7
• Atlas Arteria Raised to Buy at Morningstar
• BWP Trust Raised to Buy at Morningstar
• Vocus Raised to Buy at Morningstar
• Aristocrat Raised to Buy at Morningstar
• Seek Raised to Buy at Morningstar
• Mirvac Group Raised to Hold at Morningstar
• Goodman Group Raised to Hold at Morningstar
• Stockland Raised to Buy at Morningstar
• Vicinity Centres Raised to Buy at Morningstar
• Steadfast Raised to Buy at Morningstar
• Metcash Raised to Buy at Jefferies; PT A$2.70
• Harvey Norman Cut to Hold at Jefferies; PT A$2.80
• Flight Centre Raised to Buy at Shaw and Partners; PT A$34
• Beach Energy Raised to Buy at Shaw and Partners; PT A$1.90
• PWR Holdings Raised to Buy at Bell Potter; PT A$3.75
• BHP Raised to Overweight at Morgan Stanley; PT A$36.50
• Woodside Raised to Sector Perform at RBC; PT A$22

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