1st June 2018, 11.00am
A short and sharp one from me this week as I am mid-travel.
Whilst markets ended up a shade lower across the board, there was real fear felt specifically in Europe this week as the two major parties aiming to form government there fought over the appointment of a finance minister.
European equities fell -3% on the week up until Thursday, and Italian bond spreads (the premium of Italian bond yields over their German counterpart) leaped 0.90% from 2.00% to almost 3.00% on fears that the new anti-European coalition would open the fiscal spigot, further eroding Italy’s already laden public finances.
In the end, a new Finance Minister has been agreed and will likely be sworn in today (Friday), calming markets in the near term and helping Italian bond markets to stabilize.
Unsurprisingly with market eyes firmly fixed on European fiscal concerns, the US dollar continued to grind higher on the week.
The other major macro news, which is sure to cast some shade over market expectations for future economic growth, is the volte face from President Trump on his plans to offer tariff exemptions on steel and aluminium to ‘friendly’ nations such as those in the Eurozone, Canada and Mexico. The move drew quick rebuke from each of those nations and will see retaliatory moves made by each of these countries and zones, and arguably spark a fresh round of protectionism.
Telstra (TLS) – the potential for an asset split
The press today is speculating that TLS and its bankers are considering the idea of splitting its infrastructure assets from its customer facing assets in a move that would likely allow investors to re-rate the business from its currently lowly 10x multiple.
These types of restructurings have occurred in several countries, and provide the ability to elevate the financial leverage attached to the safe, defensive infrastructure assets, thereby enhancing shareholder returns, and similarly to allow investors to re-rate the remaining asset-light retail operation.
I alluded to this as a potential outcome in this column in recent weeks, and think that its highly likely this situation plays out the longer the shares dwindle under $3.00.
We are closer to the launch of 5G mobile infrastructure and services in 2019, which has the potential to reinvigorate investor interest in the share. For this reason, at $2.78, we are closer to BUYERS of the stock than SELLERS, but will keep you informed as to if and when we choose to double-down on this currently bad bet.
I am sorry for the short note this week. I am racing back from a few days in Sydney.
Fortunately for me there isn’t a huge amount to remark upon.
Have a terrific weekend.
Jono & Guy
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Australian Market Index
Friday 10am values
Index | Change | % | |
All Ordinaries | 6124 | -20 | –0.3% |
S&P / ASX 200 | 6012 | -25 | –0.4% |
Property Trust Index | 1403 | -1 | –0.1% |
Utilities Index | 7795 | +207 | +2.7% |
Financials Index | 5975 | -65 | –1.1% |
Materials Index | 12059 | -125 | –1.0% |
Energy Index | 11172 | -214 | –1.9% |
Key Dates: Australian Companies
Mon June 4th | N/A |
Tue June 5th | N/A |
Wed June 6th | Div Ex Date – CBAPC, CBAPD, CBAPE, CBAPF, CBAPG |
Thu June 7th | Div Ex Date – SUNPE, SUNPF, SUNPG |
Fri June 8th | Div Ex Date – ANZPG, ANZPH, NABPE Div Ex Date – WBCPD |
International Market Index
Thursday Closing Values
Index | Change | % | |
U.S. S&P 500 | 2705 | -23 | –0.8% |
London’s FTSE | 7678 | -39 | –0.5% |
Japan Nikkei | 22202 | -235 | –1.0% |
Hang Seng | 30469 | -291 | –0.9% |
China Shanghai | 3095 | -60 | –1.9% |
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