Weekly Market Update (Issue 490) – 16th March 2018

16th March 2018, 3:30pm

In a week where Australian business confidence reached its best level in 20 years, share-markets did very little.

Labor Tax Grab

Probably the biggest news of the week was Bill Shortens pledge to eliminate cash rebates on excess imputation credits if elected. As you all saw, we thought it significant enough to write a note about it, with our focus specifically on the Australian hybrid security sector.

Like so many things, it isn’t black and white, and you shouldn’t assume it is. What however we did advocate for, was for client portfolios to mitigate against any excess risk that the policy is brought into effect, and that means evaluating one’s exposure to bank capital note securities, and in particular those securities with longer dated maturities (in other words 2022 and beyond).

We think the threat of uncertainty is enough to cap the hybrid security sector between now and the Federal Election mid next year, and given the sector is trading at rather tight levels now, we saw little downside in trimming exposures where appropriate.

As a guide for what we did in the managed accounts we run, we simply halved our positions in both the CBAPD and ANZPD capital notes issues purely to mitigate our exposures. Nothing more.

Global Political Risk inching up

In the US we saw more members of the Trump Administration depart, with Rex Tillerson fired as Secretary of State over social media and National Economic Advisor Gary Cohn resign, supposedly over the administrations recent tariff moves.

Neither of these departures is good news really for markets, nor is the headline implying Bob Mueller has subpoenaed the Trump Organization for documents relating to its dealings in Russia.

It feels like the political risk is beginning to escalate, both on the domestic sphere for Trump, but also internationally in light of accusations the Russian government orchestrated the poisoning of a former Russian spy on British soil (again). I know these sound like little things for markets now, but these matters are slowly building in significance it seems to me.

Economic Data fine

On the economic front at home, beyond the terrific business confidence figures, local consumer confidence maintained its recent buoyancy this month, and home lending continued to tighten not only to owner occupiers, but also to investment borrowers.

The tightening on lending criteria to investment borrowers from APRA over the past year or more has had a terrific impact at curbing demand, and investment borrowing has now dropped back from nearly half of all mortgages 3 years ago to an 18-month low at 36%.

In the US, it was too soon to see any rise in inflation figures so that release came and passed with little fuss. Elsewhere, small business optimism reached a new record in February and employment gains were also super strong.

Wesfarmers decide to de-merge Coles

Pulling out local stock moves, there were really only a couple of news items to mention. First, Wesfarmers (WES) announced the surprise decision to de-merge its Coles supermarkets business. Interestingly the stock is up 5% today, giving those of you yet to sell down your holdings yet another opportunity to do so.

The de-merger move is an interesting one, and but for the likely leverage it will seemingly take on, I find it hard to see the positive story for equity investors. If anything, the de-merge is an admission from WES management that Coles is now ex-growth.

I do think it is a positive for Woolworths (WOW) in the very near-term as I think the decision focusses Coles management on the de-merger, and not the competition, for at least a further year. However in the medium term, cut from the apron strings of the parent, I do think Coles will be forced to compete more aggressively with WOW for market share (and the related scale benefits), and that on a 2-3 year view this move is actually more negative than positive for the overall profitability of Australian supermarkets.

Enjoy the weekend.

Jono & Guy

Interest Rate Commentary & Update

For full interest rate commentary and updates please click here

Australian Market Index

Friday 10am values

 IndexChange%
All Ordinaries 6028 -19 -0.3
S&P / ASX 200 5921 -22 -0.4
Property Trust Index 1312 +2 +0.2
Utilities Index 7567 +26 +0.3
Financials Index 6336 -52 -0.8
Materials Index 11286 -81 -0.7
Energy Index 9914 -142 -1.4


Key Dates: Australian Companies

Mon 19th March Div Pay-Date – AMPHA, NABPB, Platinum (PTM), SUNPE, SUNPF, SUNPG
Tue 20th MarchDiv Ex-Date – Crown Resorts (CWN)Div Pay-Date – ANZPG, ANZPH, NABPA, NABPE
Wed 21st MarchDiv Ex-Date – WBCPG
Thu 22nd March Div Ex-Date – Carsales (CAR), Flight Centre (FLT), WBCPCDiv Pay Date – Blackmores (BKL), WBCPF, Woodside (WPL)
Fri 23rd March Div Pay-Date – Healthscope (HSO), NABPC, WBCPE

 

International Market Index

Thursday Closing Values

 IndexChange%
U.S. S&P 500 2747 +8 +0.3
London’s FTSE 7140 -63 -0.9
Japan Nikkie 21804 +436 +2.0
Hang Seng 31541 +886 +2.9
China Shanghai 21391 +3 +0.1
    

 

Financial Services Guide Update

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Disclaimer: This information has been prepared by Primestock Securities Limited ABN 67 089 676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or update the information or opinions in it. This information does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate to your situation. It is recommended that you obtain financial, legal and taxation advice before making any financial investment decision. Prime is bound by the Australian Privacy Principles for the handling of personal information.

This information has been prepared by Primestock Securities Limited ABN 67 089 676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or update the information or opinions in it. This information does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate to your situation. It is recommended that you obtain financial, legal and taxation advice before making any financial investment decision. Prime is bound by the Australian Privacy Principles for the handling of personal information.

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