Weekly Market Update – 7 March 2022

Markets weaker as geopolitical risk weighs on sentiment

There will be no Weekly Market Update next week given the Labour Day holiday in Victoria so the next edition will be delivered in a fortnight’s time.

Amid escalating tensions globally, markets fell last week. Russia’s invasion of Ukraine continues to destabilise markets and drag on sentiment. 

The MSCI World Index fell -4.4% in AUD terms. The RBA once again left rates on hold but in reality was never going to implement any changes ahead of the Federal Reserve’s crucial policy meeting on March 15-16.  

Interestingly, global markets reined in bets for a 50bp rate hike from the Federal Reserve at its upcoming meeting amid concern that Russia’s invasion of Ukraine will negatively impact global growth.  

This is an interesting move and underpins the fluidity of swap markets given only last month a 0.50% rate hike was all but fully priced in due to inflationary concerns. 

This repricing of policy tightening carried over to UK swap markets with traders also abandoning bets for a 50bp hike by the Bank of England (BOE) in March. As a result, bonds rallied steadily across both the short end and long end of the curve.    

Despite the shift in rate expectations our short to medium-term view remains the same. We expect the Federal Reserve will hike rates in March and this will set the trend for other central banks to follow, the RBA included. We expect inflation to climb higher in the coming months as ‘lower’ readings from 12 months ago roll off. 

We do not forecast the RBA to raise rates immediately in response to the Federal Reserve but believe fuller employment data and inflationary concerns will drive the RBA to hike rates around June/July. 

Something to consider  

It is also worth considering the prolonged impact rising energy prices could have on inflation. 

Oil prices and inflation are intertwined through a cause-and-effect relationship. Oil is a major input in the global economy and is used widely from fuelling transportation to heating homes and manufacturing. If the price of oil rises, it costs more to heat homes and energy companies will pass on some or all of these costs to the end consumer. This in turn raises prices and drives inflation.    

Sanctions against Russia have already seen oil prices spike with Brent oil rising +20% for the week and WTI rise +26% – oil now trades at its highest level since 2014. But the impact rising oil prices have on inflation is something not to lose sight of. 

We remain ‘overweight’ the energy sector with the current backdrop ‘favourable’ to energy prices. Santos (STO) +8.5% remains our preferred oil producer.

With a FY22 free cash flow (FCF) breakeven forecast of US$25 per barrel (before hedging) we continue to see significant upside. FY21 results showed group unit production costs fell 3% and FY22 production and sales volumes are expected to be in the range of 110-120 million barrels of oil equivalent.  

On the distribution side, we retain an overweight position in Ampol (ALD) which climbed +3% last week. Whilst COVID-19 greatly eroded demand for petrol, diesel and jet fuel, the winding back of restrictions will inevitably mean more demand for fuel across all forms of transportation.  


Gross domestic product (GDP) climbed +3.4% in the December quarter, a pleasing reversal from the September quarter 1.9% contraction. 

Household spending was a key driver behind the economic strength with NSW, Victoria and ACT climbing +9.6% compared to the rest of the country which climbed +1.6%. With COVID-19 restrictions impacting those states in a major way, it is no surprise a lifting of restrictions saw a snap rebound. 

The household savings ratio fell from 19.8% to 13.6% on the back of this increased demand. Spending on services rose +6.3% with hotels, cafes and restaurants benefitting heavily (+24%) whilst spending on goods likewise rose above 6% reflecting pend-up demand for clothing items, footwear, furnishing and recreational goods. 

Much has been written on the economic front about peaking PMIs, supply chain issues and rising inflation all set to see a slowdown in growth. Whilst we do remain cautious on the outlook for risk assets (equities), we are not as bearish as some of the more vocal market commentators. 

Q4 GDP data along with a relatively upbeat recent Half Year corporate earnings season suggest to us that the economic environment continues to track along nicely. 

Reporting season update 

Broad earnings strength has underpinned a stronger than expected corporate earnings season with increased revenues outstripping cost pressures, boosting profits and driving cash levels higher. 

Whilst inflation continues to pose a big threat to margins, data captured so far from reporting season shows revenues are offsetting these rising costs. 

To track the progress or strength of reporting season we looked at how analysts have revised their outlook throughout February and noted bottom-up consensus expectations for ASX 200 June 2022 profits have increased by around 1%.  

Typically, analysts downgrade their profit expectations (by around 0.7%) during a reporting season month (February and August). This indicates reporting season has so far been strong.  

Further data shows that the number of companies beating expectations is exceeding those missing and whilst this ratio is slightly down on previous earnings seasons, given the more challenging environment we believe this is a very impressive set of results.  

The final stock in the PRIME Australian Equity SMA reported last week and this was Waypoint (WPR)

WPR was largely unchanged over the course of the week rising +1% after reporting FY21 distributable earnings of 15.8cps (+4.25% on pcp), mainly driven by like for like (LFL) rental growth of 3%.  

WPR provided FY22 distributable EPS guidance of 16.44c (+4.0% growth over FY21) with the FY22 guidance assuming further capital management initiatives of circa $100m (buyback/capital return). 

Gearing is at 30.1% and is at the bottom end of the target gearing range of 30-40% with $59.6m of liquidity available. Net Tangible Assets (NTA) of $2.95 per security implies the stock is trading at around an 8% discount to book value with +6% dividend yield.  

Our current investment thesis on WPR remains a hold. Strong tenant covenants and the triple net leases are all contributing to highly transparent, high quality and predictable cash flows whilst the current strategy of recycling non-core assets has been providing WPR with flexibility for future opportunities and undertake capital management initiatives.  

ASX Weekly Wrap

Despite sentiment being dampened by the terrible floods that have battered the east coast of Australia (no pun intended) the ASX200 managed to climb +1.4% last week. 

Once again, we saw a preference for ‘quality’ with large caps (+1.7%) and mid caps (+1.9%) certainly outperforming small cap stocks (+0.4%).  

No surprises that energy stocks and miners provided portfolios with the most upside with both sectors recording +8% gains over the course of the week. Iron ore rose +11% to trade over US$150/tonne. 

On the flip side, financials and staples were weakest both falling around -1.5%. 

Best performers in the PRIME Australian Equity Growth SMA were BHP (+11%), Santos (STO) +8.5% and OZ Minerals (OZL) +6.5%. 

Looking ahead

Monday 7th March 2022 – Friday 11th March 2022

  • Monday: AU ANZ Job Advertisements (FEB), CN Balance of Trade
  • Tuesday: AU NAB Business Confidence (FEB), US Balance of Trade
  • Wednesday: AU Westpac Consumer Confidence (MAR), CN Inflation
    Rate (FEB)
  • Thursday: CN M2 Money Supply (FEB), US Inflation Rate (FEB), JOLTs
    Job Openings (JAN)
  • Friday: N/A 

Friday 5th March, 5pm values

All Ordinaries 7395+122+1.7%
S&P / ASX 2007111+114+1.6%
Property Trust Index1557-28-1.8%
Utilities Index7120+66+0.9%
Financials Index6181-95-1.5%
Materials Index18177+1369+8.1%

Friday 5th March, closing values

U.S. S&P 5004329-55-1.3%
London’s FTSE6987-502-6.7%
Japan’s Nikkei25985-491-1.9%
Hang Seng21905-862-3.8%
China’s Shanghai3448-3-0.1%

Key dividends

Monday 7th March 2022 – Friday 11th March 2022

  • Monday: Div Ex-Date – CSL Limited (CSL), Northern Star Resources Limited (NST), QBE Insurance Group (QBE), REA Group (REA), Ramsay Healthcare (RHC) 
  • Tuesday: Div Ex-Date – NABPF (NABPF), NABPH (NABPH), Qube Holdings (QUB), Sonic Healthcare (SHL), Div Pay-Date – Metrics Master Income Trust (MXT), Metrics Income Opportunities Trust (MOT) 
  • Wednesday: Div Ex-Date – Brambles Limited (BXB), Costa Group (CGC), WBCPI (WBCPI) 
  • Thursday: Div Ex-Date – ANZPG (ANZPG), ANZPH (ANZPH), ANZPI (ANZPI), Insignia Financial (IFL), NABPE (NABPE), Regis Healthcare (REG), Rio Tinto (RIO), Reliance Worldwide (RWC), South32 (S32), WBCPK (WBCPK)
  • Friday: Div Ex-Date – WBCPH (WBCPH), WBCPJ (WBCPJ), WiseTech Global (WTC) 


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 4738Michelle BromleyT: (03) 8825 4751
Livio Caiolfa T: (03) 8825 4748Nicole LewisT: (03) 8825 4734
Marcus AingerT: (02) 9134 6292Nicholas MillerT: (03) 8825 4722
Dylan CresswellT: (03) 8825 4707Gina McIntoshT: (07) 3557 2557
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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