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Weekly Market Review

Written and accurate as at: Jul 13, 2017 Current Stats & Facts

The domestic share market appeared to be somewhat directionless for the first week of the new Financial Year. Giving back all the weekly gains on Friday, the S&P/ASX 300 Accumulation index ended the week 0.3% lower, with some significant sector performance divergence behind the index’s flat headline number.

Monday saw some recovery in the oil price which quickly rewound towards the end of the week. The volatile oil price sent the Energy sector into the red again, with major participants including Oil Search (OSH, -5.0%), Santos (STO, -2.6%) and Woodside Petroleum (WPL, -1.7%) all pulling back a notch. In addition, an increase in bond yields again weighed heavily on higher-yielding bond sensitives as well as some growth names: Transurban (TCL, -4.1%) and Sydney Airport (SYD, - 2.5%) both retreated materially, while CSL (CSL, -2.8%), which has been the market darling since January this year, lost momentum and dipped from the historic high it reached recently, alongside its Health Care   (-2.8%) cohort.

Elsewhere, the selloff continued at Coca-Cola Amatil (CCL, -6.1%), after some negative news hit the company. The soft-drink manufacturer announced that it lost the provision rights to Dominos to its direct rival, Pepsi. While the loss is not material in terms of the volumes CCL produces (~1m cases lost vs. ~300-400m cases produced domestically), the lost contract is expected to be at a relatively higher margin. Additionally, Woolies also decided not to stock the latest ‘no-sugar’ flavour that CCL is in the midst of launching, throwing another dampener on the stock sentiment. We remain cautious and underweight across all the portfolios for the stock.

On the other side of the spectrum, the continued rebound of the oil price helped lift the miners higher, with the Metals & Mining index finishing the week 3.4% higher. BHP (BHP, +5.6%), Rio Tinto (RIO, +2.8%) and South 32 (S32, +4.9%) all registered some meaningful gains. Outside the miners, Flight Centre (FLT, +13.6%) was the standout. The share price of the travel agency soared after it tightened FY17 guidance during the week, partially reflecting an improvement in the deflationary environment of the international market. That said, Flight Centre looks expensive at its current ~20x P/E, with growth prospects for its core business excluding inorganic growth remaining flat, and a limited growth potential of ~2-3% including its recent acquisitions. In contrast, some direct retailers including JB Hi-Fi (JBH, +2.8%) is trading with a more appealing valuation.

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