Weekly Market Update – 15 Feb 2021

Victorian lockdown drags on ASX despite positive start to reporting season.

Global equity markets climbed higher for a second consecutive week with the MSCI World Index rising +0.46% in AUD terms.

The US equity market outperformed rising +1.2% and once again set record highs as further stimulus discussions progress. Other drivers behind the strength include the increased rollout of COVID-19 vaccines.

Falling case numbers in the US has also boosted sentiment with the seven-day average of new cases falling below 100,000 – a marked improvement on the 250,000 new daily cases being reported only one month ago.

Core consumer price index (CPI) data released in the US was unchanged in January and below expectations for a 0.2% rise. The weaker than expected result eases concerns over the potential for near term inflationary shock – yields on 10-year treasury notes have doubled since last August.   

Rising oil prices further drove investor confidence rallying +5%, whilst Federal Reserve Chair Jerome Powell presented at the Economic Club of New York last Wednesday agreeing to continue with its US$120b of government-backed bond purchases per month whilst keeping interest rates near zero.

Equity markets continue to respond well to this dovish monetary policy stance because low interest rates imply a lower discount rate on future earnings meaning higher equity valuations.

In other news the UK economy fell by -9.9% in 2020 with 1Q21 likely to see a further contraction as government-imposed lockdown restrictions cripple the economy. A rapid vaccine rollout campaign remains key to returning to growth whilst China’s share market remains closed until Thursday for Lunar New Year.

ASX

The Australian share market fell -0.5% last week with all of these losses delivered on Friday as news of Victoria’s five-day COVID-19 lockdown emerged.

All sectors were weaker last week, with the exception of miners and telcos which climbed +1.5% and +2.2% respectively.

In the case of telcos, much of this strength can be attributed to Telstra (TLS) which rose +3% for the week after releasing 1H21 results. TLS accounts for 34% of the telecommunications sector so its result has a significant impact on the sector’s underlying performance.

Whilst disappointing on some levels with total income falling -10.4% to $12b and underlying EBITDA falling -14% to $3.3b, there was some positive commentary delivered by management which was well received by investors.

Management provided 2H21 underlying EBITDA guidance of $3.3-$3.6b and noted half year guidance was not something TLS usually provided but something management wanted to provide shareholders with to illustrate the inflection point the TLS business is at.

Further to this, TLS stated “the board expects to pay a total dividend for FY21 of 16c per share” alleviating shareholder concerns of a possible dividend cut. 

Finally, upbeat comments surrounding the simplification of the businesses in keeping with its T22 program were delivered. Management hope to deliver mid to high single digit EBITDA growth in FY22 followed by $7.5b-$8.5b of underlying EBITDA in FY23.

Reporting season filling investors with confidence

It has been a strong start to earnings season with encouraging results across a number of industry groups resulting in upside surprises in earnings and outlook.

Further to this, macroeconomic data remains strong in Australia with employment data and business confidence continuing to rebound.

At a stock level consensus estimates continue to underestimate the speed and magnitude of the upgrade.

Some of the key stocks to report last week include:

  • Commonwealth Bank (CBA) reported system growth in each of its core categories across loans and deposits in both the retail and business segments. The CBA capital position was stronger than the market expected with a CET1 ratio of 12.6% and surplus capital raising hopes of an increased dividend in 2H or a share buyback.

    CBA shares were -2% weaker over the course of the week with the market perhaps a little disappointed in the interim dividend of $1.50. We believe the dividend is encouraging with CEO Matt Comyn stating CBA wants to see another 3-6 months of economic data in Australia and the impact of JobKeeper rolling off before CBA move to lift its payout ratio which we believe is prudent.
  • Macquarie Bank (MQG) provided a much stronger result than expected with the market having forecast earnings would be down around -20%. Consensus now is that earnings will fall -6%.

    Key to this outperformance has been an improvement in trading conditions in 3Q21 across the Group with MQGs capital market business and commodities platform outperforming. MQG shares climbed +7% as various brokers materially upgraded their price targets.

    MQG trades on around 17.5x FY22 earnings and on a forward dividend yield of 4% which we view attractively. We believe MQG remains well placed to deliver on its decarbonisation, urbanisation and digitalisation objectives.
  • Northern Star Resources (NST) shares rose +1.6% after reporting EPS growth of +27%, 1H underlying free cash flow of $226m and 1H underlying profit rising +63% to $195m. 

    The implementation of the merger with Saracen Mineral (SAR) is also expected to deliver strong long-term synergies. The strong result came despite investing $108m in exploration and expansionary capital.

Business confidence & consumer sentiment

Business confidence and consumer sentiment both continue to point to further signs of recovery in the economy.

NAB’s Monthly Business Survey showed business confidence rose 5 points in January to 10 points, while business conditions fell back to 7 points following a strong December.

The fall in conditions was led by a fall in trading conditions and the employment index.

The decline in conditions was broad-based across industries, except for a small improvement in recreation & personal services, which continues to make small gains as restrictions ease. Overall, in trend terms conditions remain strongest in retail and weakest in construction followed by personal services.

Meanwhile, consumer sentiment continues to signal strong confidence in the underlying economy.

The index increased by 1.9% in February recouping around half the loss witnessed in January.

Given December’s consumer sentiment index recording was a decade-high, the bounce back in February is a strong sign confidence remains high amongst consumers. This is critical to the strength of the economy, particularly given the phasing out of JobKeeper at the end of March.

Looking ahead

Monday 15th February – Friday 19th February 2021

  • Monday: AU New home Sales (JAN)
  • Tuesday: AU RBA Meeting Minutes
  • Wednesday: AU Westpac Leading Index (JAN), UK Inflation Rate (JAN)
  • Thursday: AU Unemployment Rate (JAN), US Retail Sales (JAN)
  • Friday: US Weekly Jobless Claims, Building Permits (JAN)

Friday 12th February, 5pm values

 IndexChange%
All Ordinaries 7081-32-0.4%
S&P / ASX 2006807-34-0.5%
Property Trust Index1384-28-2.0%
Utilities Index6209-122-1.9%
Financials Index5833-39-0.7%
Materials Index16035+242+1.5%

Friday 12th February, closing values

 IndexChange%
U.S. S&P 5003935+48+1.2%
London’s FTSE6590+101+1.6%
Japan’s Nikkei20520+741+2.6%
Hang Seng30174+885+3.0%
China’s Shanghai3655+159+4.5%

Key dividends

Monday 15th February – Friday 19th February 2021

  • Monday: Div Ex-Date – Suncorp Group (SUN)
    Div Pay-Date – NABHA (NABHA)
  • Tuesday: Div Ex-Date – Commonwealth Bank (CBA) Computershare (CPU), Insurance Australia Group (IAG), Magellan Financial Group (MFG), Mineral Resources (MIN)
    Div Pay-Date – Betashares Legg Mason Australian Bond Fund (BNDS), Transurban Group (TCL)
  • Wednesday: Div Pay-Date – Qualitas Real Estate Income Trust (QRI)
  • Thursday: Div Ex-Date – ANZPD (ANZPD), Newcrest Mining (NCM)
  • Friday: Div Ex-Date – Argo Investments (ARG)

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

Mark JohnsonT: (03) 8825 4738Cameron MorcherT: (03) 8825 4737
Livio Caiolfa T: (03) 8825 4748Michelle BromleyT: (03) 8825 4751
Marcus AingerT: (02) 9134 6292Nicole LewisT: (03) 8825 4734
Dylan CresswellT: (03) 8825 4707 Nicholas Miller T: (03) 8825 4722
Jarrod Rodda T: (03) 8825 4729

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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