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Weekly market update - 17th of September 2019

Written and accurate as at: Sep 17, 2019 Current Stats & Facts

The local market enjoyed a slight gain last week with little newsflow post-reporting season. The week’s defining feature was a rotation away from growth and bond-sensitive stocks following a strong run. This was reflected in the performance dispersion between sectors. Information technology was the worst-performing, down -5.3%, led by high profile software stocks such as Wisetech Global (WTC, -8.7%), Xero (XRO, -6.5%), Afterpay Touch (APT, -5.7%) and Altium (ALU, -5.3%).

Xero continues to gain traction and subscribers with its cloud accounting software in the US and in the UK – both of which have far lower levels of penetration in small business online accounting than Australia and New Zealand. At the same time, Xero has a second string to its bow in its platform which hosts third-party apps designed to help businesses with a range of administrative functions such as payroll, payment automation, and cash flow management. This offers an additional avenue of growth.

The hit to growth stocks also dragged on Health Care (-3.4%), with ResMed (RMD, -5.2%), Sonic (SHL, -5.1%), CSL (CSL, -4.7%) and Cochlear (COH, -3.0%) among the worst performers in the ASX 100. Consumer staples fell -2.9%, taking a twin hit to both its growth constituents – such as China-related plays A2 Milk (A2M, -9.2%) and Treasury Wine (TWE, -3.1%) – and also to its defensives such as Woolworths (WOW, -4.3%).  

Defensive yield bond-sensitives also fell. REITs were off -0.5%, led by Charter Hall (CHC -8.5%) and Dexus (DXS, -3.4%). Atlas Arteria (ALX, -7.5%)weakened alongside fellow infrastructure stocks Transurban (TCL, -2.6%) and Sydney Airport (SYD, -1.8%).

The gold miners – Evolution Mining (EVN, -10.5%), Northern Star (NST, -9.0%) and Newcrest (NCM, -8.9%) rounded out the market’s worst performers as the gold price dropped -1.2%.

In the same way that it was the stocks with the most recent momentum which were hit hardest, it was some of the most beaten-up stocks which did best. TPG Telecom (TPM, +10.6%) was the best performer despite the ongoing uncertainty over its appeal against the ACCC’s opposition to a tie-up with Vodafone. Alumina (AWC) gained +10.4%, Boral (BLD) +9.3% and AMP (AMP) +6.6%.

CYBG (CYB) was up +9.3% as its CFO met investors in Sydney to provide detail around the recently announced top-up of provisions. Other banks also benefited from the rotation away from growth. Both regionals outperformed - Bank of Queensland (BOQ) up 7.0% and Bendigo Bank (BEN) +4.5% - while National Australia Bank (NAB, +5.1%) was the best of the Big Four. Westpac (WBC) rose +3.7%, Commonwealth Bank (CBA) +3.3% and ANZ (ANZ) +2.9%.

The iron ore price continued to recover off its lows as signs emerged that both the US and China were softening the rhetoric around trade. Fortescue Metals (FMG)rose +7.6% as a result, followed by both Rio Tinto (RIO, +3.2%) and BHP (BHP, +2.3%).

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