Weekly equites note
Written and accurate as at: Apr 13, 2017 Current Stats & Facts
Australian equities were largely flat for the week, with the S&P/ASX 300 down -0.1%. A relative paucity of stock-specific news has left the market increasingly sensitive to macro economic drivers in recent weeks and, in this vein, the most recent developments in the US saw defensives and gold outperform for the week. There has been an uptick in speculation in recent weeks, fuelled by comments from some connected with the Fed, that the latter may look to shrink its balance sheet by choosing not to reinvest at least a portion of the US Treasury bonds it holds as they mature. Any move in this direction – which would depart from the current policy of rolling over maturing bonds into new ones – would be a de facto tightening upon the economy without the need to raise rates. While the Fed were quick to explain that they still plan to raise rates twice this year, some people still concluded that it may result in a shallower path of rates rises and, when coupled with weaker-than-expected payroll data and the US strike on Syria on Friday, saw defensives and gold generally outperform for the week.
Hence REITs gained +1.3% for the week, with bond-sensitives Transurban (TCL) (+1.5%) and Sydney Airport (SYD) (+1.4%) also outperforming. Small cap gold miners St Barbara (SBM) (+16.8%), Northern Star Resources (NST) (+11.8%) were among the best performers in the S&P/ASX 300, with its larger peer Newcrest Mining (NCM) (+9.5%) just behind. This helped the S&P/ASX 300 Metals & Mining index outperform, gaining +2.8%, although the rest of the sector was mixed, with BHP Billiton (BHP) up 2.3%, Rio Tinto (RIO) flat, and Fortescue Metals (FMG) shedding -1.9%.
The banking sector dragged on the index, with the big four down between -1.3% (CBA, ANZ) and -2.6% (NAB). This was in part driven by macro factors, as banks have been seen as a beneficiary of rising interest rates. However this was exacerbated by rhetoric from APRA on concerns over the domestic housing market, prompting fear of further macro-prudential controls on housing loan growth.
Gaming machine maker Aristocrat Leisure (ALL) was among the best performers, up +5.0% on evidence that its new games continue to gain market share in the crucial North American market. Metcash (MTS) was among the worst performing stocks, down -8.9% on news that their IGA stores were implementing the second round of their Price Match scheme, which is designed to react to lower prices from their supermarket competitors. The market expressed concerns that this could impact earnings – we think a meaningful hit is unlikely, with any additional price cuts likely to be driven by suppliers. In our view, this is a classic case of the kind of story which assumes disproportionate prominence in environments of little stock-specific news flow.
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