Weekly market update
Written and accurate as at: Jul 10, 2018 Current Stats & Facts
The local market added 1.37% last week, climbing to 6225 to its highest level since January 2018. This was in spite of the first round of trade tariffs between the US and China coming into effect. Unsurprisingly, jitters around further escalations led some to question the potential impact on economic growth and the near term demand for industrial metals. This dampened sentiment on domestic miners. Both (BHP, -2.2%) and Rio Tinto (RIO, -4.4%) finished the period weaker in that respect, and were the largest detractors from the headline index performance. As such, we saw Metals & Mining drift 1.4% lower over the week, dragging down Resources (-0.6%). On the contrary, performance from the Energy sector on the contrary was solid as the global oil price remains elevated.
Industrials (+1.7%) did all the heavy-lifting for the index, partially attributable to the rebound of some index heavyweights. The ‘“Big Four”’ banks saw some buying support despite the ongoing Royal Commission. Whilst the sector rotation from the miners would have helped, we suspect the improved stock valuation – Banks (+2.7%) have declined by ~16% since their April peak last year – should also see some investors unwind their underweights. Weekly performance ranged from 1.6% (WBC) to 3.8% (CBA). Similarly, the beleaguered mobile carrier Telstra (TLS, +6.9%) also had a 5-day winning streak last week, coming out of a seven-year low. Telstra announced the merger of its venture business with private equity company HarbourVest, which will see the former realise $75m from the deal. Investor sentiment has been on a downward spiral lately for Telstra, as its fixed line business becomes more immaterial, whilst competition for its mobiles business continues to ratchet up. Against this backdrop, Telstra may well continue to endure some more pain but our view remains that we will ultimately see rationalisation among mobile providers. The company continues to grow its subscriber base, and is signalling that it will defend its market share.
We have been flagging stock performance dispersion within our market for some time, which is conducive for active stock selection. And this was again evident during last week. In spite of a positive gain in the index performance, there are a few noteworthy stocks that finished the week in the red. Domino’s Pizza (DMP, -6.0%) received some broker downgrades, citing concerns around DMP’s Australian business due to high store intensity, and its Japan business due to weak sales growth. Similarly, infant formula manufacturer Bellamy’s (BAL, - 19.6%) saw its stock sell off as there might be delays for BAL to obtain its China Food and Drug Administration (CFDA) approval – China is the key market for the company’s headline growth. Some of the other growth names also pulled back, with Seek (SEK, -2.3%), Carsales (CAR, -4.0%) and Costa Group (CGC, -6.9%) all recording losses over the week.