James Gerrish

The volatility that played out during December seems to be drifting into the abyss with the volatility index back below the 20 handle and markets around the region grinding higher. Yesterday we bucked a weak lead from Asia plus weakness in US Futures to end flat, while today we saw a more positive backdrop in both regions / US Futures +150pts at close + Asian markets generally up more than ~1.5%  which supported a good squirt higher for the Aussie index – mostly driven today by the consumer discretionary names, the sector that lead weakness yesterday. As we’ve written already this week, we think market will re-test the recent lows at some point, probably go below them however it’s just a question of how far they grind up before they sell off.

Looking around at fundies performance stats for the December quarter and there were some shockers, some down 10-20% for the 3 months to the end of December and interestingly, the long short style funds that I’ve looked at haven’t really been providing the hedged returns they talk about. Recapping the last quarter for MM, we were set nicely into October with shorts in place and high cash, we outperformed well into November however underperformed in December as we bought stock too early in the correction – ending down ~5% for the 3 months in the Platinum Portfolio and down around ~4% in the Income.  Tomorrow morning we’ll put out our 2019 Outlook piece that will cover our views for the year ahead - keep an eye out for that in the morning.

Overall today, the ASX 200 closed up +41 points or +0.71% to 5814. Dow Futures are currently trading up +153pts or 0.61%.

ASX 200 Chart – good grind higher today as Asian markets were firm, although volume still light.

CATCHING OUR EYE

Broker Moves; Goldman’s took the knife to their Iron Ore price forecasts and as a result downgraded Fortescue (ASX:FMG) to a sell, while a stock that caught my eye today was Nine Entertainment (ASX:NEC) which put on +3.38%, bouncing well after a fairly tough period. Citi saying that value is emerging despite a challenging ad market. If Clive Palmer is anything to go by, surely a NSW state + Federal election this year will give a short term boost to the networks…

Nine Entertainment (ASX:NEC) Chart

ELSEWHERE:

  • Mayne Pharma Downgraded to Neutral at UBS; PT A$0.83
  • Southern Cross Media Upgraded to Neutral at Citi; PT A$1.05
  • Seven West Upgraded to Neutral at Citi; PT A$0.60
  • Nine Entertainment Upgraded to Buy at Citi; PT A$1.60
  • News Corp GDRs Upgraded to Buy at Citi; PT A$20
  • HT&E Upgraded to Buy at Citi; PT Set to A$1.90
  • Steadfast Downgraded to Hold at Morningstar
  • Fortescue Downgraded to Sell at Goldman
  • Fortescue Downgraded to Neutral at JPMorgan; PT A$4.90
  • Costa Upgraded to Outperform at Credit Suisse; PT A$5.60
  • Northern Star Downgraded to Neutral at JPMorgan; PT A$9
  • St Barbara Downgraded to Neutral at JPMorgan; PT A$4.70
  • Bellamy’s Downgraded to Neutral at Goldman; PT A$8.50

Navitas (ASX:NVT) $5.53 / +12.86%;  A revised takeover deal for education provider Navitas saw that stock top the leader board adding more than 12% today. The initial bid, which we discussed here, has been increased by 5.9% from $5.50 to $5.825 as the consortium led by private capital firm BGH look to close out the deal. NVT, which provides pre-university and pathway courses globally, announced that the board intends to unanimously accept the new offer but also ensured the door will be left open for other suitors to propose superior offers. The company has been a long time takeover target for those looking for exposure in the booming international education market, however the stock price struggled for much of 2018 as the company slipped into a loss.- the deal looks likely to proceed.

Navitas (ASX:NVT) Chart

Syrah Resources (ASX:SYR) $1.975 / +10.34%; Bounced hard again to test the $2 region today – a far cry from the ~$4.60 level it was trading at last January, however a better production profile seems to have prompted short covering. SYR have 58m shares sold short or 17% of the register and a break of $2.00 could be the next upside catalyst…it got to $1.9975 today closing a shade lower. Continued production issues have plagued its Balama Graphite operation in Mozambique  and the shorts have had a field day on this, however recent news that has been more positive could turn the tide here. A volume breakout over $2 looks bullish

Syrah Resources (ASX:SYR) Chart

Perpetual (ASX:PPT) $32.56 / +0.62%; After a soft morning session buying came in to buy weakness in PPT today after a weak FUM update. As touched on yesterday, fund managers are highly leveraged to market returns and weakness throughout the December quarter has had a negative influence on PPT. Today they reported a drop in funds under management (FUM) of $2.5bn for the quarter, the bulk of which ($2.1bn) was related to weak performance. For the 3 months, the All Ords were down by -9.74%. Morgan Stanley released a good note yesterday on the sector which highlighted how ‘cheap’ asset managers have become flagging that they’re trading near 15 year lows on a group weighted average 12mths fwd, however they go onto say they’re cheap for a reason given the high level of FUM walking out the door.

‘While we expect a gradual recovery from here, we think the group will remain in outflows and a substantial re-rating is unlikely in the near term’ (Morgan Stanley)  

However, the main catalyst for a turn of fortune in the sector is FUM, and given weakness in December we would expect that retail flows would again be weak into the March quarter of 2019. It’s cheap, pays good yield but needs a catalyst.

Perpetual (ASX: PPT) Chart

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Comments

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Elizabeth Geyer

Very interesting. Thank you