The Match Out: Market higher, energy & infrastructure supportive while banks weigh

James Gerrish

Market Matters

While the market only rose ~25pts today, it felt a lot better outside of the banking sector with the big 4 down by an average of ~4.2%. Concern that sharper rate increases will have an impact on bad debts the reason with a note from UBS this morning the potential catalyst. Elsewhere, 70% of the ASX 200 finished higher, infrastructure stocks doing well on corporate activity while energy continued to impress.

  • The ASX 200 finished up +25pts/ +0.36% at 7121
  • The Energy sector was best on ground (+4.23%) while Utilities (+3.19%) & Industrials (+2.00%) were also strong.
  • Financials (-2.85 %) are the weakest link and was the only sector to close lower – the big four banks detracting 53 points from the ASX 200
  • Banks were hit hard today, Westpac (WBC) the worst of them down 6.11% on a UBS downgrade, ANZ the relative performer down by 2.29% (UBS upgraded ANZ).
  • Morgan Stanley is also out with a note saying while higher rates help margins, this is offset by higher funding, weaker housing, and mortgage markets, and a greater risk of recession.
  • The banks have announced their passing on the 50bps interest rate hike in full as you’d expect.
  • Toll road operator Atlas Arteria (ALX) +16.2% on corporate activity, flowed through the rest of the infrastructure stocks.
  • Boral (BLD) + 14.69% jumped on the appointment of Vik Bansal as Chief Executive. He did a good job operationally at Cleanaway before he left on bullying allegations, a hard nose leader suited to a Kerry Stokes stock (Seven Group owns 70% of BLD).
  • Woodside (WDS) +5.62% and Santos (STO) +3.42% up continued optimism toward energy.
  • Uranium stocks rallied as the US signals buying – Paladin (PDN) +13.48%.
  • Iron Ore was down ~1% in Asia today – the Iron Ore stocks remained bullish, Fortescue (FMG) on the cusp of breaking out.
  • Gold continued to chop around ~US$1850 – not much happening in the gold market ATM.
  • Asian stocks were all higher, Hong Kong up 1.95%, Japan +0.64% while China was up +0.54%%
  • US Futures are down, not a lot though ~0.20%

ASX 200

Banks – Hit hard today

The sector was sold off hard today taking 53 points from the broader index, the average decline of the big four was 4.2%, a day like this hasn’t been seen since COVID took hold. UBS released a report this morning updating their sector views and as a consequence, downgraded Westpac (WBC) and upgraded ANZ which speaks to the relative performance between the 2 (WBC -6.11% v ANZ -2.29).

UBS flagged that their view towards the sector had ‘evolved’ since 1H22 – in other words, they’ve changed their mind and have now turned more cautious. They talk about the backdrop of higher interest rates and lower growth generally being negative for relative performance.

“While we are confident in the overall banking sector, with rising interest rates providing a shock absorber for earnings, we are cautious on the potential for H2 share price and sector outperformance due to 1) higher than average market ratings (based on PE relative) and 2) near-term macroeconomic downside shocks.

Earlier in the week, Market Matters wrote that we were cautious on the sector given weak seasonality - 3 of the big 4 had already traded ex-dividend and we generally see an air pocket in June / July as a consequence before buying on CBA leading up to their August dividend, which drags the sector higher. For now, that is our roadmap and while we have exposure to the banks, we are at ~10% in our growth portfolio & 12% in our Income Portfolio split between Commonwealth Bank (CBA) & Bank of QLD (BOQ).

ANZ Weekly Chart

Atlas Arteria (ALX) $8.25

ALX +16.2%: the toll road owner & operator was one of the top performers today after IFM Infrastructure Fund revealed they had taken a significant stake overnight. Around 15% of the company changed hands at $8.10, (approximately 14% above yesterday’s close) as the $181 billion global fund edged in. Atlas was expecting a formal approach from IFM with the hope of seeing a takeover bid for the company that owns toll roads across Europe and the US, though nothing landed in the inbox today. That didn’t deter traders though with ALX finishing above where the initial stake was acquired. IFM are generally keen acquirers of total businesses so we would view this as a serious approach that could morph into a takeover.

Uranium

A nice boost for uranium stocks today with US President Joe Biden announcing a $US4.3 billion push to reduce the country’s reliance on Russian supply. The plan is to buy enriched uranium from US producers for reactors currently in the works to help support local production. Currently, there is only one producer in the US, but a number of others are looking to start or restart production if prices can continue to rally. With a stable, size buyer of domestic production in the market, they can be more confident in investing money in the ground. Peninsula, which owns a Wyoming development, was up 20% today on the news while Paladin (PDN) was 13.48%.

Broker Moves

  • Universal Store Cut to Neutral at Macquarie; PT A$4.40
  • Best & Less Group Cut to Neutral at Macquarie; PT A$2.40
  • PEXA Group Rated New Underweight at Jarden Securities
  • Karoon Energy Rated New Underweight at Jarden Securities
  • Carnarvon Energy Ltd Rated New Overweight at Jarden Securities
  • Event Hospitality Rated New Overweight at Jarden Securities
  • Healthia Rated New Buy at Barclay Pearce Capital; PT A$1.72
  • Cooper Energy Raised to Overweight at JPMorgan

Major Movers Today

Market Matters Weekly Video Update

Today James & Harry discuss what’s currently driving markets, the fall-out from the RBA’s decision on rates, and what this means for some of the rate-sensitive sectors such as real estate & retail. They also discuss Portfolio Performance & tonight’s State of Origin!


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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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