The Match Out: Market ends lower but Energy and Gold stocks rally, bid for AGL pulled

James Gerrish

Market Matters

After opening the session higher, stocks were largely one way for the rest of the day closing down around 1%, the out of favour IT sector continuing to languish, ably supported in the sell-off by Healthcare. On the other hand, if you’re heavily into Energy and Gold, you’re cheering, with bullion +$US14 in Asia today, settling around $US1985 at our close and Brent Crude hitting around US$130 a barrel, and industrial commodities in Asia continuing to rally – more on that below.

  • The ASX 200 finished down -72pts/-1.02% at 7038.
  • The Energy sector was again best on the ground (+5.25%) while Materials (+0.95%) were also strong.
  • IT (-4.68%) and Healthcare (-3.25%) were the weakest links.
  • If you’re not in gold or oil, and to a lesser degree, industrial commodities your portfolio will be struggling, even the more defensive areas that generally benefit from heightened volatility are doing it tough.
  • Telstra (ASX: TLS) -2.55% a clear example of that down around 2.55% to $3.82 and is starting to look interesting again.
  • Also interesting are the Insurance stocks, most of them saying reinsurance will cover the bulk of flood liabilities however the market remains sceptical.
  • While QBE went “ex-dividend” today it has fallen sharply from $12.80 to $10.08 close today hurt by the one-two combo of natural disasters and falling bond yields.
  • The Cannon-Brookes/Brookfield consortium has "put their pens down" on the AGL takeover, having upped the bid to $8.25. AGL -1.75% to $7.30
  • Woodside (ASX: WPL) +9.52% and Santos (ASX: STO) +5.28% were standouts today, Whitehaven Coal (ASX: WHC) +4.76% also chiming in. Gold stocks also well supported.
  • The banks have been struggling overall however the cream rises to the top in volatility, CBA +0.04% today while WBC -1.98%, NAB -1.56%, ANZ -1.19% while the pointiest end of the sector - Virgin Money (ASX: VUK) fell -7.23% to $2.95
  • Bendigo (BEN) -5.31% but was ex-dividend.
  • Iron Ore was up around 3% in Asia.
  • Gold was up +0.75% today settling at ~US$1985 at our close.
  • Asian stocks were down, Hong Kong off -2.78%, Japan -2.76% while China was off -1.51%.
  • US Futures are all down, although they started rallying around our close – S&P off -1.2%, was off around 1.7% at 2pm this afternoon.

ASX 200 chart

Commodity prices

Commodities have been hot and the below gives a good overview of price charges today and the year to date numbers.

Commodity prices (Source: Bloomberg)

AGL Energy (ASX: AGL) $7.30

AGL -1.75%: Over the weekend, the Cannon-Brookes / Brookfield consortium increased their bid for AGL from $7.50 to $8.25 before the AGL board formally rejected the offer, saying it still undervalued the group. A few whispers circulating (not sure of accuracy) that they sounded out AGL at $9.00 and not even that was going to get the job down. Cannon-Brookes said the consortium have put their "pens down" implying they were walking away, however putting one's pen down seems to imply more of a pause than a complete closure on proceedings. The AGL board are adamant the breakup strategy is the way to go, I just hope this strategy is not being deployed with self-preservation at its core. At $8.25, we were likely sellers in the Income Portfolio.

AGL Energy (ASX: AGL)

Whitehaven Coal (ASX: WHC) $4.18

WHC +4.76%: while the bulk of commodities have been moving higher since the Ukraine conflict started, coal has seen a more leveraged move than most. Whitehaven kicked off their on market buyback with the stock already more than 30% higher than when it was announced at the half year results. Shares have rallied so strongly over the past few sessions that they were unable to buy a share back today given companies can only buyback at a maximum premium of 5% above the previous 5 sessions VWAP. They have $400m to spend for now, to purchase up to 10% of shares on issue – to get that full 10% though the average purchase would have to be $3.87. If coal prices stay elevated it’d be a safe bet for the buyback to be topped up.

Whitehaven Coal (ASX: WHC)

Broker moves

  • CSR Rated New Overweight at Barrenjoey; PT A$6.60

Major movers today

Have a great night,

The Market Matters team.

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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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