Local market grinds higher but financial services are left behind

James Gerrish

Market Matters

The ASX was looking strong again today, staging a recovery from early lows to trade higher for the 6thsession running – the ASX200 is now up 271pts since the close on the 14th of May. Today’s move was carried by consumer discretionary names spurred on by RBA Governor Lowe’s comments pointing to more aggressive easing, as well as suggesting to the incumbent Liberals that the government should look at stimulating the employment market – hoping to drive an increase in discretionary spend. Interest rate futures have just about priced in a 25bps cut to interest rates at the RBA’s next opportunity in two weeks.

Construction leveraged names caught a bid today despite 1Q construction numbers showing a -1.9% drop for the quarter. This was better than forecasted, and was an improvement on last year’s 4thquarter where construction activity fell -2.1%. Bingo (BIN), a stock we own in the Platinum Portfolio, was best on ground as a result of the numbers, adding +7.88% today.

Westpac (WBC) added another 1% today, up over 13% since the election result, well outperforming the other 3 big banks – not really a surprise given how WBC underperformed its peers in the lead up.

Overall today, the ASX 200 added +10 points or +0.16% to 6510. Dow Futures are trading down -38pts / -0.15%.

ASX 200 Chart

ASX 200 Chart


Stocks we hold on the move: A few stocks we hold were on the move today. Waste Management company Bingo (BIN) +7.88% to test $2.00 again before closing at $1.985 – the best performer in the ASX 200. Emeco (EHL) bounced back from weakness yesterday on no new news to finish up +4.15%, back up above $2 while some buyers have re-emerged in the Lithium space with Orocobre (ORE) + 5.68% along with Pilbara (PLS) which is not in the portfolio up by +7.05%. Clearly some money going back up the risk spectrum into areas that have interesting dynamics at play.

Bingo Industries (BIN) Chart

IOOF (IFL) -7.02%: were hit hard today after saying that APRA had provided formal directions relating to a show cause notice earlier in the year. As means of brief background, IOOF’s Super Trustee business is an APRA regulated entity, and ARPA had concerns around its operations. IFL now has until June 2019 to APRA’s demands. They were also the target (along with AMP) of a bearish note out from UBS on the traditional platform providers, claiming that their earnings derived from platforms could drop more than 30% in the next five years. UBS reckon that structural changes in Wealth Management, pressure for lower fees and more players in the market is a clear headwind, and the established players should be trading on a single digit P/E. We have no interest in IFL, however we have mused that AMP will be an interesting turnaround story at some point.

IOOF (IFL) Chart

Broker moves:

· IOOF Holdings Downgraded to Sell at UBS; PT A$5.05

· IOOF Holdings Downgraded to Sell at Citi; PT A$5

· Chorus Downgraded to Neutral at Forsyth Barr; PT NZ$5.65

· Investore Property Raised to Outperform at Forsyth Barr

· Investore Property Cut to Neutral at Macquarie; PT NZ$1.71

· ALS Downgraded to Sell at Deutsche Bank; PT Set to A$6.57

· Stockland Upgraded to Outperform at Macquarie; PT A$4.48

· Computershare Upgraded to Neutral at Macquarie; PT A$17

· Computershare Upgraded to Neutral at JPMorgan; PT A$16.50

· Super Retail Downgraded to Sell at Morningstar

· JB Hi-Fi Upgraded to Buy at Goldman; PT A$30

· Harvey Norman Upgraded to Neutral at Goldman; PT A$3.85

· James Hardie GDRs Downgraded to Outperform at CLSA

· Bluescope Downgraded to Neutral at Goldman; PT A$14.05

· Corporate Travel Rated New Outperform at Credit Suisse; PT A$30

· AMP Downgraded to Sell at Citi; PT A$1.90

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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