Markets rebound as RBNZ releases revised capital requirements (WHC, MFG)

James Gerrish

Market Matters

Cooler heads prevailed across the market today with the index opening higher and despite being choppy, it stayed higher throughout the session buoyed by positive whispers around trade. As we suggested this morning, Trump wants / needs a trade resolution with China – a full-blown trade war with the world’s second largest economic superpower will almost inevitably lead to a global recession which is no good for his election prospects. That said, it’s clear from the last few days that the market had priced in a done deal and anything less than that will be seen as a disappointment.

At a sector levels today, we had strongest buying across the energy stocks thanks to falling stockpiles overnight, while consumer discretionary and IT also rallied hard. Healthcare lagged but still managed finish in the black, US Futures were again muted through our time zone while Asian markets followed our market higher.

Overall, the ASX 200 gained +76pts /+1.16% today to close at 6683. Dow Futures are trading marginally higher by 8pts/0.03%

ASX 200 Chart

ASX 200 Chart


RBNZ Capital requirements: ANZ was in a trading halt on open this morning while the RBNZ announced their final determination around capital requirements. As expected, they increased Tier 1 capital requirements to 16% (banks currently holding 13.8%) however they increased the time frame for compliance to 7 years up from the 5 years that was expected. This is a better result for the banks, and they all rallied on the back of it, ANZ most influenced here and they topped the gains for the sector today closing up 2.11%.
There was concern that more onerous capital requirements would force ANZ to raise capital, however that now seems unlikely. According to ANZ, they need additional capital of $3bn over the 7 years which can be generated organically. Many in the mkt were expecting a capital call upwards of ~$5bn which has proved overzealous. All in all, some ‘less bad’ news for the banks than it could have been.

Magellan (MFG) +3.6%; no surprise that Magellan closed higher today on the market’s rebound, but the stock was also out with their FUM flow update for November and the big fundie once again posted some significant growth. FUM is nearing the $A100b mark after adding another $4.2b in the month with $97.7b as at the end of November. The bulk of the gain came from market moves while retail and institutional investors tipped in an additional $410m. It’s a quality name ingrained in many portfolios and a great way to leverage a positive move in the markets – particularly the US Nasdaq.

Magellan (MFG) Chart

Whitehaven Coal (WHC) -11.03%; downgraded guidance today on labour issues and drought impacts to their Maules Creek mine set to squeeze production and increase costs. Maules Creek is their biggest operation by volume, producing around half Whitehaven’s output. Run of mine (ROM) production expectations for FY20 here were cut ~8% to 10-11Mt, impacting total production by around 5%. Unit costs for the group are expected to climb to $A 73-75/t, up nearly 6%. So, costs up, revenue down and stock smashed as a result. Whitehaven will start to look interesting when all of these flushes out, although broker coal price estimates remain well above the current spot.

Whitehaven Coal (WHC) Chart

Broker moves;

· SeaLink Rated New Buy at Canaccord; PT A$5.58

· Telstra Raised to Buy at UBS; PT A$4

· Janus Henderson Rated New Inline at Evercore ISI; PT $26

· Viva Energy REIT Rated New Buy at Shaw and Partners; PT A$2.93 – I’ll cover this one in the income note soon, worth a look

· BHP Reinstated Equal-Weight at Morgan Stanley; PT A$39.40

· Santos Raised to Buy at Morningstar

· GrainCorp Raised to Buy at Morningstar

· NAB Raised to Buy at Morningstar

· oOh!media Cut to Hold at Morningstar

· Bapcor Raised to Buy at Morningstar

· CSL Cut to Neutral at JPMorgan; PT A$270

· Dexus Raised to Outperform at Credit Suisse; PT A$12.32

· Perenti Global Raised to Buy at Argonaut Securities; PT A$2.20

· WiseTech Raised to Hold at Bell Potter; PT A$25

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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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