Weekly Market Update – 13 September 2021

Markets weaker as central banks begin to taper

Global equity markets fell slightly last week with MSCI World index falling -0.9%.

Returns were once again bolstered by a weaker AUD which fell -1.4% and ultimately drove the MSCI World Index to -0.4% loss in AUD terms.

Whilst the Reserve Bank of Australia (RBA) announced the tapering of asset purchases last week, it extended the timeline for another 6 months. The RBA will now purchase $4b of government securities per week compared to $5b previously in what is being viewed as “less easing but for longer.”

The RBA decision to extend bond purchases until at least February 2022 reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak.

A similar tone was observed from the European Central Bank (ECB) which announced it would slow the pace of its bond purchasing program in Q4. The ECB announced it will conduct purchases at a slightly lower pace but reiterated that interest rates will remain at present levels until inflation climbs higher.

How are we positioning portfolios?

Investment markets have rallied so strongly in the past 18 months on the back of accommodative monetary policy, cash rates at zero and QE policy.

But as fiscal support has slowly been unwound and central banks begin to taper their bond purchases, we believe the outlook becomes cloudier.

Market valuations are looking fuller and given the ASX200 is on track to record 12 months of consecutive gains (this last happened in 1935) it is important to take a step back and reassess.

Corporate earnings are weakening as evidenced by the most recent reporting season and restrictive lockdowns continue to weigh on sentiment.

We have not yet materially raised cash levels across portfolios, but our cautious outlook has led us to reposition the portfolio to sectors we believe can outperform in a down market.

If our cautious outlook does indeed prove to be correct (and much of this caution has already been evidenced by companies unwilling to provide FY22 guidance) then the pace and size of company downgrades is something we believe investors need to be mindful of in the coming months.  

The PRIME Australian Equity Growth SMA is overweight defensives such as healthcare and has a strong representation across consumer staples which we think will outperform cyclicals, banks, commodities and value.

The PRIME Defensive Income SMA has recently reduced some of its exposure to long duration bond funds and increased exposures to floating rate ASX-listed hybrid securities.

A brighter outlook for travel?

The NAB consumer insight report from September has some interesting statistics around Australians travel intentions.

An excerpt can be found below but the full report can be sourced at: Microsoft Word – Special Report – Travel Intentions (September 2021).docx (nab.com.au)

Over 1 in 2 Australians are planning to take a holiday in the next 12 months, with local tourism set to benefit most. 1 in 4 of us are strongly motivated by a desire to help in the economic recovery of their chosen destination.

Australia’s vaccination rollout has continued to climb, with forecasts for 70% full adult vaccination by late-October and 80% by mid-November well on track.

The conversation is now turning to when Australia can start to live with the virus and when restrictions might ease, including those relating to travel, both within and outside the country.

Qantas (QAN) recently announced that it was hoping to resume international travel with countries with high vaccine rates in December, by which time current domestic border closures should also have been eased.

Against this background, NAB recently asked over 2,000 Australians about their travel intentions – are they planning to travel again, where to, for long and how much will they spend?

Around 8 in 10 are planning to holiday at home (46% interstate, 33% in their own state), while 15% are looking to head overseas.

People over 65 are most likely to holiday in their own state, and younger Australians aged 18-29 least likely. For those planning to holiday in Australia, Queensland is the number one destination of choice (with the Gold Coast coming out on top), followed by NSW and Victoria.

ASX Weekly Wrap

The ASX200 fell -1.6% last week

Small caps underperformed falling -2.4% giving back virtually all of the previous week’s gains.

Mid-caps outperformed albeit in a down market falling -1% with positive returns from REA Group (REA) which climbed +2%, ResMed (RMD) up +2.2% and Domino’s Pizza (DMP) +3.4% offsetting weakness across Reece Limited (REH), BlueScope Steel (BSL) and Seek Limited (SEK) which fell between 2-4%.

Large caps fell in line with the broader market with the ASX20 and ASX50 falling -1.5%.

All sectors posted negative returns last week.

Best performers were telcos which fell -0.4% with Telstra (TLS) climbing +0.8% after one broker recently raised its target price on the stock to $4.50.

Consumer discretionary stocks were next best falling -0.6% with Crown Resorts (CWN) and DMP largely driving the sector.

On the flip side miners and energy stocks fared worst falling -3.4% and -1.9% respectively. In a recurring theme, miners were softer after iron ore tumbled another -10%.

Fortescue (FMG) fell -12% although went ex-dividend $2.11 during the week. Factoring the dividend back into FMG shares and the stock fell -2.3% for the week. This was more or less in line with BHP which fell -2.6%. RIO underperformed falling -4.6% after a broker cut its price target.

Standout performers in the portfolio last week were Macquarie Group (MQG) and Qube Holdings (QUB).

MQG shares rose +3% after providing guidance for 1H22 NPAT to be in the range of $1.8-$2b. Taking the mid point of $1.9b suggests a material upgrade to 1H22 consensus estimates.

Whilst MQG stated that competition amongst peers was likely to lead to further pressures on margins, MQG also stated that greater transaction activity is expected to continue in FY22 for Macquarie Capital. Additionally, MQG’s commodities and global markets segment is performing better than expected.

MQG remains a core holding in the portfolio and is now up almost +50% on our purchase price.

QUB shares rallied +3% after announcing it had entered into a binding agreement to acquire Newcastle Agri Terminal for $90 million.

QUB is well positioned to take advantage of northern New South Wales’ grain production, which sees 4.8 million tonnes of grain produced in an average year.

The facility comes with around 60,000 tonnes of silo storage, modern rail receival infrastructure, road discharge facilities, and the capability to load 2,000 tonnes of grain per hour.

QUB intends to fund the acquisition from existing undrawn debt facilities.

Marley Spoon (MMM) fell -14% last week after Woolworths announced it has sold down its near 10% stake in the business.

Whilst disappointing, the ongoing 5-year strategic relationship WOW and MMM have from a business perspective remains unchanged.

The strategic partnership remains in place until 2024 with the relationship allowing MMM to leverage off WOW’s access to logistics, supply chains and cross promotion marketing.

We continue to view MMM which is a recent addition to the portfolio favourably with the catalyst for MMM being its ability to deliver on its long term target of 30% per annum revenue growth.

Looking ahead

Monday 13th September 2021 – Friday 17th September 2021

  • Monday: CN M2 Money Supply (AUG)
  • Tuesday: AU NAB Business Confidence (AUG), US Inflation Rate (AUG)
  • Wednesday: AU Westpac Consumer Confidence (SEP), CN Unemployment Rate (AUG), UK Inflation Rate (AUG)
  • Thursday: AU Unemployment Rate (AUG), US Retail Sales (AUG)
  • Friday: N/A

Friday 10th September, 5pm values

 IndexChange%
All Ordinaries 7706-121-1.5%
S&P / ASX 2007407-116-1.5%
Property Trust Index1623-39-2.3%
Utilities Index5906-58-1.0%
Financials Index6697-56-0.8%
Materials Index16014-556-3.4%

Friday 10th September, closing values

 IndexChange%
U.S. S&P 5004459-76-1.7%
London’s FTSE7029-109-1.5%
Japan’s Nikkei30382+1254+4.3%
Hang Seng26206+304+1.2%
China’s Shanghai3703+121+3.4%

Key dividends

Monday 13th September 2021 – Friday 17th September 2021

  • Monday: Div Ex-Date – Chorus Limited (CNU), Healius Limited (HLS), L1 Short Fund (LSF), WBCPH (WBCPH), WBCPJ (WBCPJ)
    Div Pay-Date – Computershare Limited (CPU)
  • Tuesday: Div Ex-Date – Inghams Group (ING), News Corporation (NWS)
  • Wednesday: Div Ex-Date – ANZPE (ANZPE), ANZPF (ANZPF), Costa Group (CGC), Regis Healthcare (REG)
    Div Pay-Date – Alumina Limited (AWC), CBAPE (CBAPE), CBAPH (CBAPH), Qualitas Real Estate Income Fund (QRI), Spark Infrastructure (SKI)
  • Thursday: Div Pay-Date – REA Group (REA)  
  • Friday: Div Ex-Date – Carsales.com (CAR)
    Div Pay-Date – Tabcorp Holdings (TAH)

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 4707Nicholas Miller T: (03) 8825 4722
Jarrod Rodda T: (03) 8825 4729Gina McIntoshT: (07) 3557 2557

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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