Weekly Market Update (Issue 492) – 29th March 2018

29th March 2018, 12.00pm

It was another mixed week, but characterized by significant volatility.

Increased Volatility, continued technology selling

As an example, the tech-heavy NASDAQ index in the U.S lost nearly -3% Friday, rallied +4% Monday, lost -3% Tuesday and then -1% on Wednesday night. Whilst things weren’t quite as bad locally, the moves in technology stocks do demonstrate an increasing uncertainty over equity markets, and seemingly the end of the unbridled optimism witnessed through much of the past year.

Whilst Facebook (FB) is down -15% on where it was a fortnight ago, it is no longer the sole whipping boy for tech investors. Amazon (AMZN) fell as much as -7% on Wednesday night, before closing down just over -4%. Its weakness was spurred by reports that the Trump Administration was set upon increasing its regulation over AMZN and its every expanding infiltration of consumer habits.

Netflix (NFLX) was also down -5% on Wednesday night, and on the whole the NYSE FANG index, which includes the likes of AMZN, FB, NFLX, Apple (AAPL), Alphabet (GOOG), Alibaba (BABA) and Baidu (BIDU) amongst others is down around -15% from its highs. What can’t be denied is that there is seemingly an increasing consumer concern and developing regulatory scrutiny of these companies and their data collection and use for commercial purposes.

Since these stocks have been such a popular ‘trade’ for investors, its little wonder that the stocks have underperformed in recent weeks.

Some positives on the local economy & market

Though we feel an overarching caution for markets in 2018, there are some small positives to come through on the local economy this week that shouldn’t be ignored.

Firstly, the Australian Dollar has fallen back under 77c and to a fresh 3-month low. Weakness in the iron ore price is undeniably the culprit, and it feels like this will be ongoing in the months ahead.

The weaker AUD is supportive of domestic economic activity.

Secondly, and in a surprising and somewhat ironic turn of events given my remarks above, the Australian Federal Government fiscal position has significantly improved during 2018, such that the last 4-months to the end of February saw the government running a fiscal surplus of $3.4bn. This puts the government on track to arguably beat the projected 2018 fiscal deficit of over $29bn by as much as $8bn at the current run rate.

The rapid repair of Federal Government finances year-to-date stems from the improving local economy, strong cost control and better than expected export revenues.

As we head into the Federal Budget on May the 8th, there are grounds to be mildly optimistic that the government are in a position to offer further economic stimulus to the local economy, with infrastructure a continued focus.

Banks – earnings pressures remain

This week, Australia’s major banks hit their lowest levels relative to the ASX200 in 6 years.

In fact, Aussie financials have performed only in line with the market since the GFC, meaning that you could have simply owned the market in that time and done just as well.

That’s 10 years.

If that statistic doesn’t dispel the myth that Australia’s banks are the foundation of every investors long term portfolio, then nothing will. Yes, these things offer a reasonably consistent income stream, and there is merit in that, but that does not for a minute justify them being 25-30% or more of Australian equity portfolios, or more in many instances.

International equity opportunities, alongside better visibility on small and mid-cap opportunities, are issuing in a new dawn for domestic portfolios and its super important to come along for the ride.

In the near term there is potentially some short-term respite to come however, with the three major banks excluding Commonwealth Bank (CBA) all due to report earnings during the first few weeks of May. The earnings numbers won’t be great, and I would expect 2019 estimates come down due to margin pressure and loss of market share to non-bank financial lenders, but, we could see ANZ launch an extended buyback following recent asset sales, and that might provide some near-term relief from which to then consider reducing positions again.

Speaking of Small-Cap shares

Next week we will send through some updates on our thinking in small-caps, and put to you a few ideas for consideration.

We have done a lot of work on small-cap fund managers in recent months, and continue to advocate for portfolio weightings at or around the market weight, which is roughly 10% of the ASX200.

We have also been doing a lot of work on companies such as Vocus Group (VOC), Afterpay (APT) and BWX (BWX), amongst others.

There are different angles on all of these companies – VOC has the potential to be a turnaround story, whilst both APT and BWX seem interesting growth plays now at more affordable multiples.

After Easter it’s my intention to scope out in greater details a few potential thoughts around the smaller and mid-cap space.

First Step – a great way to save in small doses.

In the past year PRIME have become associated with First Step (they use one of our Australian Financial Services licenses), who are a rather cool fin-tech start-up with a focus on helping people save money by investing spare change from everyday purchases or via recurring deposits.

You should check them out via the Apple App Store or via Google Play on your mobile phone, or indeed online at firststep.co

We think it’s a terrific way to promote saving, particularly in younger generations, and could be an awesome way for parents and grandparents alike to commence a deliberate saving and investment strategy for their kids and grand-kids by way of a rather neat and easy to use mobile app.

I’ll be highlighting this more going forward because it’s a rather cool app, and serves a terrific purpose for a minimal effort and cost.

Go and take a look!

A happy Easter to all.

Jono & Guy

Interest Rate Commentary & Update

For full interest rate commentary and updates please click here

Australian Market Index

Thursday 10am values

 IndexChange%
All Ordinaries 5899 -145 -2.4
S&P / ASX 200 5790 -148 -2.5
Property Trust Index 1301 -10 -0.8
Utilities Index 7546 +67 +0.9
Financials Index 6081 -227 -3.6
Materials Index 11120 -348 -3.0
Energy Index 10120 -144 -1.4


Key Dates: Australian Companies

Mon April 2nd Easter Monday Holiday
Tue April 3rd Div Pay-Date – WBCPC, WBCPG
Wed April 4th Div Pay-Date – Crown Resorts (CWN), Downer (DOW)
Thu April 5th Div Pay Date – QUBE (QUB), Suncorp (SUN), Wesfarmers (WES)
Fri April 6th N/A

 

International Market Index

Wednesday Closing Values

 IndexChange%
U.S. S&P 500 2605 -40 -1.5
London’s FTSE 7045 +91 +1.3
Japan Nikkie 21031 -562 -2.6
Hang Seng 30023 -1049 -3.4
China Shanghai 3122 -142 -4.4
    

 

Financial Services Guide Update

Our Financial Services Guide has been updated, please click here to download the most recent version.

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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