MARKET STRATEGY – A FORERUNNER
Do me a favour and read through this please guys.
These few paragraphs will inform a discussion I expect we will be having more and more in the weeks ahead.
I have said on many occasions, that the absolute final word for us is the performance of the ENTIRE PORTFOLIO, and not the individual stocks or assets within it.
Sure, the individual assets have to work out on average to ensure the portfolio is ahead, but the point is we DON’T GET PASSIONATE OR PERSONAL ABOUT SINGLE STOCKS NOR ASSETS.
They don’t hug us, feed us or entertain us. And most of all, they don’t care what price we paid for them.
I say all of this specifically because for the first time in three years, I have an emerging shopping list of things to buy.
And on my shopping list, it’s not necessarily the banks, Wesfarmers (WES) and Telstra (TLS).
And if I have things to buy other than banks and Telstra, then that means that some shares (perhaps banks and Telstra!) will have to be sold to make room for them.
Simply put, we might be forced to make some decisions based upon ‘relative’ performance – and RELATIVE PERFORMANCE is just as important or more to the health and vitality of your portfolio.
As a hypothetical example of what I am suggesting, consider the idea that selling Telstra at $5.50 might not be so silly even if the stock rebounds back above $6.00.
Because if those TLS proceeds are freed up and deployed to a stock like QUBE (QUB) or Magellan Financial (MFG) or SEEK (SEK) or Crown Resorts (CWN) or Oil Search (OSH) and that stock rises MORE than TLS, then it’s a winner.
This is where we need to start harvesting capital efficiently and picking horses for courses.
We need to ensure that the portfolio we have is alive and able to outperform out of this dip.
NEW PORTFOLIO THEME AFOOT
To that extent, I am increasingly minded to think that the value in the Australian market is emerging in areas exposed to domestic economic activity.
I have said on numerous occasions, and as recently as last week, that the Australian economy is not as bad as people make out.
The new Prime Minister this week as good as outlined this point, by strongly advocating for government that can engender an improvement in confidence.
There is much of the ‘Chicken Little’s’ to our economy right now, and sadly without positive leadership it has become self-reinforcing.
I do expect this to change.
I fully expect that performance in the ASX200 will slowly start to shift from those large Australian corporate’s exposed to the US-dollar (think AMCOR, Brambles, Cochlear & James Hardie), to domestic-focused cyclicals in the media, transport and service industry.
In essence, the ‘trendy’ foreign earners on elevated multiples will de-rate, and the ‘out-of-favour’ local shares on low ratings will re-rate.
This is where we are headed from a portfolio strategy perspective.
WHILST I EXPECT WE HAVE YET TO SEE THE ABSOLUTE DOWNSIDE REACHED IN THE ASX200, MAKE NO MISTAKE, WE WILL REBOUND SOUNDLY OUT OF THIS SELL-OFF.
BUT THE BIGGEST FOCUS WE MUST HAVE IS ON BEING IN THE RIGHT STOCKS
FOR THE BOUNCE, NOT SIMPLY THE ONES WE HAVE HAD BY DEFAULT.
It was nice to finally see a little of the market’s recent volatility disappear this week.
After having had a down day on Tuesday the ASX200 has actually rallied for three straight days – only the second time to do so since the last week of July. That being said – a week without volatility does not necessarily imply stability.
It was more a case of waiting and watching for the Feds decision overnight.
Locally, utilities outperformed the market gaining 2.9% compared to the ASX, which is currently up 2.35% for the week. Westpac was the pick of the banks up 3.67% and BHP managed to claw back most of last week’s loss, up 3.30% for the week.
Jono has continuously reaffirmed in past updates it pays to be patient when it comes to selecting stocks. As noted a few weeks back, quality companies like QUB, NVT and VED have all come back well of their highs – as I write this Veda group, the data analytics and credit information provider is up 32% after a $2.3B takeover bid.
With the market nearing 5000 again on Tuesday before rebounding this is yet again another reminder to be patient and selective. We are following this mantra and are not too far away from acting on it.
The AUD/USD rose 1.4% for the week. Its fluctuations overnight preempting the Feds decision saw a sharp spike in the dollar. However, as quickly as it jumped it rebalanced to take into account the decision to leave rates on hold for the time being.
NEW PRIME MINISTER…. AGAIN
So Malcolm finally got the job he and many Australians on both sides of politics, seemed to want him to get.
That’s not my politics, it’s just the polls.
I have to say, I am optimistic all the same. The manner in which he effected his takeover of the PM’s office speaks a lot for the government I expect he will run – organized, determined and outcome-focused.
Whether his politics is yours or mine is largely irrelevant, as I think what he will be, is a considered and pragmatic leader. A leader for the majority, not the special interest groups, and a leader with an eye on the big picture.
Australia has lacked that for a decade now, and it shows.
I have said to many of you privately that the lack of political leadership in this country is something we wished upon ourselves, and is emblematic of a hubris built up in our country during the boom years.
Substance gave way to spin sloganeering.
Turnbull’s speech ahead of challenging for the PM role, spoke of a need to foster confidence here. That people needed some belief.
I couldn’t agree more.
I have said over and over in these pages for the past few months that the domestic economy is recovering pretty well – not that anyone would know it in the press.
It’s high time we looked on the bright side here, and focused on the positives (of which there are many.)
For the market and policy, I expect very few changes to the government agenda ahead of the next election. Nor should there be.
However in the next parliamentary term, assuming government remains unchanged, perhaps we would expect to see changes to super, the GST, income and corporate tax rates, renewable energy policy, infrastructure and negative gearing proposed.
It’s incremental, but I see this new PM as making a positive change to our markets and economy over time.
ANOTHER MAJOR MERGER GLOBALLY – BEER MARKET CONSOLIDATION
On Wednesday it was announced the two largest beet company’s in the world, AMBEV and SABMiller would seek to merge in a nearly $US250bln deal.
Beer brands such as Peroni, Budweiser, Corona, Miller and the Australian Fosters/CUB brands would end up under one roof.
The implications locally are for Coca Cola Amatil (CCL), and they are positive – albeit long dated.
Early in the week CCL was the subject of a silly takeover rumour (from SAB), that now looks as daft as it sounded. However for CCL, the potential exists in a year to acquire some local beer brands, perhaps something more significant, from the merged
SAB/AMBEV beer giant, as it seeks to appease the ACCC on market share.
The prospect of acquiring some quality beer brands is a genuine positive for CCL in terms of allowing them to diversify away from their slowing CSD (soft drink) base, and by throwing more genuine volume down their expansive distribution network.
This doesn’t make us more bullish for CCL now as it is a long ways off, but we can see potential on a 12 month basis to keep in the back of our minds for the future.
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