Weekly market update
Written and accurate as at: Apr 16, 2018 Current Stats & Facts
Australian equities largely shrugged off some of the geopolitical developments last week to record a +0.7% gain (S&P/ASX 300). This was largely as a result of resources, which gained +3.6%, while there was some rotation away from the more defensive sectors such as A-REITS (S&P/ASX 200 A-REITS -1.3%). Financials ex-property largely held the line, ending the week down just -0.3%.
These moves were consistent with underlying fundamental changes, given the slight pick-up in bond yields (Aus 10 yr yield +8bps and US 10 yr yield +5bps) and a bounce in both the iron ore (+2.0%) and oil prices (Brent crude +7.6%). Perhaps the only mild surprise was that it was the miners which generally did better than the oil/LNG stocks, despite the move being stronger in oil than in iron ore – with BHP (BHP) +3.8%, Rio Tinto (RIO) +6.8%, and Fortescue (FMG) +5.1% versus a +0.7% gain for Woodside Petroleum (WPL), +2.7% for Origin Energy (ORG) and +4.2% for Oil Search (OSH). That said, the oil-related stocks have been on a strong run as OPEC production constraints have seen high inventories reduced to normalised levels, while tension has ratcheted up on several fronts in the Middle East. There is some irony in that Santos (STO)(+0.5%), which has previously enjoyed the most leverage to an improved oil price, might find its upside limited by Harbour Energy’s indicative bid price should oil’s strong run continue.
The alumina/aluminium complex is also seeing a supply squeeze as US sanctions upon Russian firm Rusal – which produces ~6% of the world’s aluminium – compounds the existing effect of curtailed production at the Alunorte alumina refinery in Brazil. This has left Alumina (AWC) (+8.4%) – which has exposure to bauxite mines, alumina refineries, and aluminium smelters via its 40% JV in AWAC – in a sweet spot as aluminium prices have risen to multi-year highs.
BlueScope Steel (BSL) gained +7.8% as the market gained further confidence in steel price resilience post the Chinese winter shutdowns. Elsewhere, health care stocks also had a good week, led by Healthscope (HSO) (+4.7%) and ResMed (RMD) (+3.7%).
A2 Milk (A2M) continued to bounce around and its -4.3% fall last week was among the market’s worst. Flight Centre (FLT) (-4.0%) also gave back some of its recent gains, but is still well ahead over the year to date. Star Entertainment Group’s (SGR) (-2.9%) recent directed equity placement to a Chinese property developer continued to weigh on its share price, with the market expressing disappointment with their dilution. Outside of this, property trusts were generally weaker, led down by Stockland (SGP) (-2.5%), Dexus (DSX) (-2.3%), and GPT Group (GPT) (-2.3%).
Nine Entertainment (NEC) ended the up +1.8% for the week following the news that rival Seven West Media (SWM) (+12.6%) had purchased broadcast rights for Cricket Australia – in conjunction with Fox – for the next six years. At first blush the $75m a year SWM are paying for all the domestic Test Matches plus the popular Big Bash might compare favourably with the $60m that NEC are paying for the tennis rights, which has far less actual content. However this overlooks the fact that viewership for all but a few Test series is not that strong, while the decision to simulcast Big Bash matches on both Seven and Fox means that a large proportion of viewers will shift to watch ad-free on pay TV, if NEC’s experience with the rugby league is anything to go by.