UBS makes three moves in its ASX best ideas list

Charts and Caffeine

Livewire Markets




Source: Yahoo Finance


It's a quiet one today with only a speech from Reserve Bank Governor Phil Lowe a potential headline-maker. He is due to deliver a speech titled "Price Stability, the Supply Side, and Prosperity" at the Annual Committee for Economic Development of Australia Dinner - and if you can work out any monetary policy implications from that, then let us know.


It's easy for us to say "rates go up, stocks go down" but what is the theory behind that? This chart provides the theory in a visual and actionable way. For instance, the US Federal Reserve is unwinding its balance sheet at a pace of US$95 billion per month. And for every month that it does that, this chart suggests that the fair value of the S&P 500 continues to slide - roughly along the grey dotted line or about 2% a month. 

If the theory is borne out, the S&P 500 will hit 3400 by year-end which equates to seven complete months of balance sheet unwind - but note how high the index's valuation will still be even if it comes down at a rate of 2% a month!

Conclusion: liquidity is something investors need to care about and it's happening in real-time.


UBS is back with changes to its ASX best ideas list. If you need a refresher on some of the last changes, you can click here: 

7 of UBS' best ASX investment ideas for Australia's soft landing

This month, they have made two more changes to its best ideas list:

Orica (ASX: ORI): The broker says the company holds solid pricing power against a high inflation backdrop off the back of tight global ammonium nitrate markets which drive a positive multi-year EPS growth outlook.

Netwealth (ASX: NWL): an improving valuation and new product launches are great news for this company. We also covered NWL's addition to the UBS "buy" list in yesterday's report - if you missed that, you can click on the CNC profile to find it.

And one change has been made to its worst ideas list:

NAB (ASX: NAB) replaces Commonwealth Bank (ASX: CBAas funding costs become a larger focus point, as well as the potential for a negative surprise around volume growth in its earnings. 


6,700: The number of rate hikes made by G20 nations this calendar year. (Source: Livewire)

And in all likelihood, the Reserve Bank of New Zealand may add another 50 or even a 75 on Wednesday. For your definitive catch-up, click here:

There have been 6,700 basis points in rate hikes this year - but what's actually changed?

Hans Lee wrote today's report.


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Charts and Caffeine
Markets Wrap
Livewire Markets

Charts and Caffeine is Livewire's daily pre-market wrap. We get you across the overnight markets and share the best in global finance so you can start your day on the front foot. Written by Hans Lee (Mondays - Thursdays) and Chris Conway (Fridays).

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