Weekly Market Review
Written and accurate as at: Jun 30, 2017 Current Stats & Facts
The S&P/ASX 300 fell -1.5% last week, dragged down by weakness in the banking, mining and AREIT sectors. Wednesday’s trading delivered the bulk of these losses; the market firmed over the latter half of the week, despite the unexpected blow to banks from the South Australian government, which took a lead from its Federal counterpart and announced its intention to implement an additional levy upon the banks.
There is some doubt over the justification for this levy, which leaves it open to a legal challenge from the banking fraternity. The national government has cast their levy as reciprocation for their guarantee of bank deposits, while Mr Weatherill’s government can lay no such claim. If implemented, the levy will only equate to an impost of somewhere between 0.1-0.2% on bank earnings but, more significantly, it opens the door to similar measures from the other states. All in all, it adds to the considerable cloud of uncertainty that hangs over the sector as the market waits for further guidance from APRA on capital provisions. Commonwealth Bank (CBA) was down -1.9% for the week, while Westpac (WBC), National Australia Bank (NAB) and ANZ (ANZ) were down -2.3%, -3,2% and -2.5% respectively.
The news of Amazon’s intention to buy Whole Foods Market weighed on the retail REIT sector over the week. The S&P/ASX 200 AREIT index was off -4.7%, driven by falls in index heavyweights Scentre Group (SCG) (-5.7%) and Westfield (WFD) (-5.3%). Ironically, the grocers themselves managed to hold up reasonably well; Woolworths (WOW) (+0.1%) and Wesfarmers (WES) (+0.3%) – which owns Coles – were both flat, while Metcash (MTS), which supplies its IGA franchisees, gained +4.3% ahead of its result announcement. Other retails were mixed; Myer (MYR) fell -2.8% while JB Hi-Fi (JBH) gained +1.3%. As we remarked last week, we believe that the shifts in sentiment driven by slowing retail spend and speculation over Amazon are likely to drive some interesting investment opportunities in the retail sector over the near to medium term given the significant degree of uncertainty – and the mispricing that should result.
Elsewhere, insurer QBE (QBE) (-11.3%) was among the week’s largest losers after management warned that higher-than-expected claims from its emerging markets divisions are likely to crimp its margins for the half. QBE is a complex business and this surprise highlights the importance of understanding the business in its totality – rather than focusing on just those parts which management are highlighting at any point in time.
The S&P/ASX 300 Metals & Mining index fell -1.4%. BHP Billiton (BHP) (-2.6%) and Rio Tinto (RIO) (-2.0%) underperformed the market, however this was offset by some strength in Iluka Resources (ILU) (+2.3%), Alumina (AWC) (+1.9%) and the smaller gold miners, which were up by as much as 4-5%. Industrials ex-banks were a mixed bag, although some of our key positions such as Bluescope Steel (BSL) (+2.2%), Aristocrat Leisure (ALL) (+2.0%), and Qantas (QAN) (+1.3%) bucked the broader market trend to end the week in the black.
Health care was the best performing sector as investors sought defence amid the volatility. Cochlear (COH) (+3.4%), CSL (CSL) (+2.7%), and Resmed (RMD) (+1.8%) all did well and there were strong gains from their smaller peers such as Mayne Pharma (MYX) (+6.1%) and Sirtex Medical (SRX) (+3.4%).