Australian Market Summary – 6 November 2015
So Jono is away in Hong Kong and has left this week’s update in my hands.
So it’s my time to jump off the interchange bench and introduce some fresh legs!
The ASX200 is on track for another down week as we run into the backend of the year. It has shed a little more than 1% this week at the time of writing this.
Banks were the worst performing sector followed closely by resources, which have now fallen more than 7% in the last three weeks.
Iron ore prices fell for the eighth straight week and now appear likely to spend a prolonged period of time in the forty-dollar range.
The RBA kept interest rates on hold locally as the rest of Australia tuned in to watch the Melbourne Cup.
Jono was adamant that rates would remain unchanged at 2% as was the case and the RBA gave a little more insight as to the future direction of rates. But more on this later…
Our Separately Managed accounts this week…
Nice to see some strong outperformance this week from Crown! It was our Growth portfolio’s best performer and is up 2.85% for the week.
Other notable contributors include Resmed, Carsales and Computershare, which all outperformed the ASX200 by more than 2%.
The Growth portfolio outperformed by nearly 1% this week and has now beaten the market by close to 5% for the calendar year.
I realise I am sounding like Jono here but I assure you this is not a marketing ploy, rather an attempt to highlight what Prime’s SMAs do and how they operate.
If you would like to learn more about Prime’s SMAs, please view Mark’s video below:
REA group continued our markets M&A season by agreeing to buy iProperty Group (IPP) for $750M on Monday, furthering REA’s interests in web based real estate advertising throughout the Asian region.
IPP shareholders were to receive either $4 per share or a mix of $1.20 a share in cash and 0.7 shares in a newly formed unlisted company that will own an indirect interest in iProperty.
Asciano Limited (AIO) continues to find itself buried deep in the middle of Qube Holdings and Canada’s Brookfield Infrastructure Partners takeover intentions.
QUB last week took a 20% stake in AIO in its attempt to block Brookfield’s takeover plans. However, before the dust could settle, Brookfield today announced it had acquired 188 million shares overnight, representing a 14.9% stake in AIO.
Coupled with a 4.3% interest in AIO stock, this actually represents a near 20% interest in AIO for Brookfield. Brookfield’s latest intentions signal a desire for majority control of AIO rather than the full ownership they had originally sought via a scheme of arrangement, however something tells me there are more twists and turns to come in this story.
QUB had Brookfield on the back foot but Brookfield counterpunched. Now QUB’s turn to reply. AIO is up 16.5% in the last week and a half!
BHP in early trade today was down as much as 5.4% as a result of a burst dam at one of its Brazilian mine operations. Latest reports suggest 16 fatalities and 45 missing persons after a dam barrier broke at a joint venture iron ore operation, of which BHP has a 50% interest with the rest being owned by Brazilian miner Samarco Mineracao SA.
However, buyers clearly thought the initial sell-off was overdone and as a result BHP has recovered half its morning losses, down currently 2.4%
Interest Rates & The RBA
So the RBA left interest rates unchanged at Tuesday’s meeting and whilst this was expected, there certainly was more interest in this meeting given the weak inflation data that emerged last week.
The likelihood of a rate decrease spiked last week after low inflationary figures were released to the market.
The RBA maintained that the global economy is expanding at a moderate pace, with some further softening in conditions in the Asian region, continuing US growth and a recovery in Europe.
The RBA referred to a moderate expansion in our economy in justifying its decision to leave the cash rate unchanged. Whilst GDP is below long-term averages, business surveys indicate a measured improvement in overall conditions. Additionally, growth in employment and a steady rate of unemployment provided further reasons for the RBA to see no need to cut.
However, the possibility of a future cut is now more likely, as Glenn Stevens’ statement indicated his and other member’s concerns over the “outlook for inflation[which] may afford scope for further easing of policy.”
As mentioned in last week’s update, we are continuing to warm to the idea of Woolworths.
Whilst we have not as yet pulled the trigger, we do believe most of its concerns are now priced in to the stock after the recent profit downgrade brought WOWs price back from mid 27s to mid 23s.
Whilst WOW has many well publicized challenges ahead of it, we think on a 17x 2016 P/E we are close to becoming buyers of this stock. That being said, timing always matters so continue watching this space.
Forgive me for the brevity of the update this week. The trades are coming through in quick succession and I’m doing my best to multi task.
Hope you all managed to back the Cup winner this week have a great weekend!
Key Dates: Australian Companies
Mon 9th Nov
Tue 10th Nov
AGM: Asciano (AIO)
Earnings: Incitec Pivot (IPL)
Wed 11th Nov
AGM: Computershare (CPU), NAVITAS (NVT)
Dividend Ex-Date: WBC, WBCHA, WBCHB, SUNPD
Earnings: Dulux (DLX)
Thu 12th Nov
AGM: Aurizon (AZJ), Brambles (BXB), Flight Centre (FLT), REA Group (REA), Wesfarmers (WES), Treasury Wine (TWE)
Dividend Ex-Date: WOWHC
Fri 13th Nov
AGM: Lend Lease (LLC)
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