The Match Out: China injects more liquidity, stocks bounce, Weekly Video Update

James Gerrish

Market Matters

The market was down early, but news that China’s central bank boosted its daily liquidity injection, plus confirmation that Evergrande had reached an agreement with bondholders on a repayment due 23 September, got buyers back out of hiatus and the market pushed higher. The 7200 low set on Wednesday morning looks solid for now and we suspect that’s the low for the current pullback.

  • The ASX 200 finished up +23pts / +0.32% to 7296
  • Energy and Materials were the main sectors offering support while Financials & IT lagged
  • While the market edged higher it was by no means aggressive buying – more about sector rotation as banks/insurers made way for a resurgence amongst the miners
  • Iron ore halted its recent decline trading up 3.5% and that underpinned gains of around 4% and 3% in Fortescue (ASX: FMG) and Rio Tinto (ASX: RIO) and a rally of around 2.5% from BHP Group (ASX: BHP).
  • The Bank of America was the latest to downgrade FMG to a sell and $12 price target as the firm cut Iron Ore price forecasts – they also downgraded BHP but upgraded Whitehaven (ASX: WHC) and South32 (ASX: S32). Buy high and sell low seems to be the call there…
  • The rest of the commodities complex was generally higher, Oz Minerals (ASX: OZL) in the Copper space +3% while the Energy stocks were strong – Santos (ASX: STO), our preferred pick, put on 2%.
  • China is obviously the focus for now however their move to inject more liquidity today should be seen as a positive. And with the ball very much in their court regarding Evergrande, it’s hard to see them letting it fail in such a way that creates wider ramifications.
  • The US Federal Reserve is also in focus this week, the market keen to hear more on tapering. In MM’s view, the most dangerous move the Fed could make for markets would be to delay the taper. That in itself would show a level of concern for current trends and would send a message that something is wrong with the current recovery.
  • AGL Energy (ASX: AGL) gained 3% today after maintaining its full-year earnings guidance of between $220 million and $340 million. You could drive a fleet of Mack Trucks through that range.
  • Gold was higher during Asian trade today, gaining around $US1780 by our close. While it doesn’t like the price much above $US1800 an ounce, there is buying when it drops too far below.
  • Iron Ore Futures higher in Singapore.
  • In Asia, China was back online and down -0.71% - Hong Kong not
  • US Futures are pointing to a better start overseas, all up around 0.5%

ASX 200 Chart 

Weekly Video Update

Today, James and Harry talked about the decline in commodities and whether the current pullback in the market is a buying opportunity. Remember to ‘like’ and subscribe to the YouTube Channel if these videos are of any benefit – it means we’ll keep doing them!

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Broker moves

  • Whitehaven Raised to Neutral at BofA; PT A$3.15
  • South32 Raised to Buy at BofA; PT A$4
  • Fortescue Cut to Underperform at BofA; PT A$12
  • BHP Cut to Neutral at BofA; PT A$39
  • New Hope Rated New Buy at Barclay Pearce Capital; PT A$2.49
  • Megaport Rated New Buy at Citi; PT A$20
  • Champion Iron Raised to Buy at Citi; PT A$6.40
  • ARB Rated New Overweight at Morgan Stanley; PT A$56
  • Sigma Healthcare Cut to Neutral at Citi
  • CCX AU Raised to Neutral at Evans & Partners Pty Ltd; PT A$5.90
  • Harvey Norman Raised to Buy at Goldman; PT A$6

Major movers today

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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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