Well as the movie said, ‘Greece is the word’.
Thank you to Guy for writing an excellent and informative summary of events in my absence last week.
Forgive me for my brevity this week, but I am acting on minimum sleep, having had only an hour of kip in the last day and a half flight back from London.
GREECE UPDATE …
Though the start of the week saw heavy selling after it was announced that the Euro-group had rescinded its final offer to the Greek government, the balance of trade has been in fact quite subdued.
The rationale for this semblance of calm is simply that international markets are so used to seeing a ‘last-minute solution’ forged, that no one truly believes it’s over until it truly is over.
The situation in Greece however has truly turned to farce this week, with the decision to call a referendum this Sunday into the ‘austerity’ measures supposedly being forced on Greece in addition for an extension of bailout terms. The decision to call a referendum into an ‘offer’ that is no longer ‘officially on the table’, is an odd one, but more odd were stories mid-week that the Greek’s had in fact tried to accept these terms during the week in spite of the governments urging of its people to vote against the austerity proposal only makes the whole situation all the more bizarre.
What I am absolutely convinced of is that irrespective of the outcome of Sunday’s referendum, the northern European leadership remain unconvinced of their desire to truly cut Greece loose. For this reason, the talks and discussions will continue, with more and more spurious justification for delaying an ultimate decision likely to act as a negative rather than a positive, the longer it goes.
I had to laugh at the newswire headlines today that showed exit polls demonstrating 80% of Greeks were keen to retain the Euro, but that only 50% were in favour of austerity. It’s the classic definition of having your cake and eating it.
I guess what I am saying is don’t expect this conundrum to solve itself this weekend team.
Our market is modestly lower this week, but with that said, we did see a few days of heavy selling late in the previous week.
It’s hard to split much out amongst the sectors in performance terms, but I would say Miners were again the worst of the bunch. That sector is down over 2.5% against the ASX 200 Accumulation’s fall of 0.5% as I type.
The likes of BHP and Rio Tinto (RIO) are now back to far more ‘fair’ values, and could no longer be deemed expensive from my standpoint. That said, we don’t have to BUY ‘fairly valued’ shares, so for now BHP and RIO remain on the sidelines.
Much of the weakness in mining shares this week came after a renewed bout of selling in Chinese iron ore. 3-month forward iron ore is back under $50/ton, having been north of $60/ton a few weeks back. It seems that though inventory in China is falling, the lack of end-market demand is such that prices have still yet to stabilize. This months Chinese manufacturing data showed the Steel industry’s new order flow had fallen to the lowest level since 2008.
Let’s sit it out on the sidelines still here, but for clarity, the mining sector to my mind is now looking a fair value.
Two of the four best performing Australian shares this week were those subject to takeover interest. Logistics operator Asciano (AIO) and apparel-retailer Kathmandu Holdings (KMD) were both subject to surprise takeover interest this week, causing both shares to jump over 20%. Pacific Brands (PBB) and Bluescope Steel (BSL) were the other two best-performing stocks rising 48% and 26% respectively after encouraging corporate performances at each.
Of the names we focus on, Crown Resorts (CWN) and Carsales.com (CAR) were the pick of the bunch for us, rising 7% and 4% respectively in a softer market. CWN in particular had a burst higher after the Macanese government decided to relax its visa terms to allow Chinese passport holders to now stay 7 days in the colony, up from 5. The June gross gaming revenue numbers for Macau casinos were also released, and had a modest beat against pessimistic expectations.
We retain a positive outlook for CWN, as discussed on numerous occasions this past 6 months.
The saga in IOOF (IFL) continues to rumble on, with today’s press suggesting that senior IFL executives will be hauled in front of a Senate inquiry into the allegations next Tuesday. The 15% fall in IFL shares since the allegations surfaced seems to factor in a genuinely negative impact on the business, an outcome on which I am not as convinced. Certainly IFL procedures look a little shabby in the full light of day, however I remain unconvinced that these allegations will see a wholesale departure from its aligned advisory group. Fortunately for much of the IOOF business, its advisory businesses are branded independently of the core IOOF brand, meaning that customer fallout should be mitigated.
We remain comfortable holders for now in IFL.
In spite of the impact the fall in IFL shares had on our PRIME equity managed accounts, we are pleased to report that both the PRIME Australian Equity Income & PRIME Australian Equity Growth accounts matched the ASX200 Accumulation Index performance in June. Whilst we are never happy to see a fall in the order of 5.3% as per the index, we are at least pleased to see that the portfolio managed to withstand the IFL fall, again keeping us in good check for a reassertion of our 2015 outperformance in the months ahead.
To round the weekly comment out, we are pleased to say we did not fall for the attractions of either Slater & Gordon (SGH) nor G8 Education (GEM), despite the superficial attractiveness of their weaker share prices in June. Both share prices continued to fall, and we feel lucky and vindicated that the complexity of both business models forced us to leave both stocks alone. We ducked a bullet or two here.
We remain minded that the ASX200 is increasingly better value beyond the top-20 names. Oil Search (OSH) and Fairfax (FXJ) remain potentially interesting acquisition opportunities in time, and we are watching them closely.
To round out the local commentary, June economic data released this week was mildly encouraging with a rebound in both the weekly ANZ Consumer Confidence figures to an 18-month high and in the Australian Industry Group Services sector activity, which also pushed back into expansive territory.
Again, this data fully confirms our strongly-held opinion that there will be NO FURTHER RBA INTEREST RATE CUTS THIS CYCLE.
Key Dates: Australian Companies
Mon 6th July
Tue 7th July
Div Pay Date: G8 Education (GEM)
Wed 8th July
Thu 9th July
Fri 10th July
Div Pay Date: Fisher & Paykel Healthcare (FPH)