From Jonathan Bayes, Investment Consultant, Bentleys Wealth Advisors.
Once again, global share-markets have managed to remain resilient in the face of perplexing US trade policy on tariffs. This week President Trump proposed tariffs on a further US$200bn of Chinese products exported to the US, eliciting the same retaliatory response from Beijing that they would follow suit with tariffs on US agricultural and industrial machinery sales back to China.
The trade war is escalating, but at this point in time there is little evidence in the US economic data to suggest that there has been any notable impact on small business confidence.
In the US, both equity and bond markets continue to trade with a ‘goldilocks mindset’, with the prospect of a trade war seemingly cooling any risk in the eyes of bond investors that unprecedented levels of US economic growth could ever lead to inflation.
In the face of this optimism, we remain guarded. I still feel comfortable that it is just a matter of time before the impact of record low unemployment figures, 1m+ new job offerings year-to-date and a workforce increasingly motivated to move jobs for better terms conspire to throw a wage inflation scare at global financial markets.
Again, for this reason, and several others, we remain a little longer of cash than we otherwise might.
In the US next week, and in Australia and Europe a fortnight later, we will begin hearing quarterly profit figures from companies.
With US economic growth as good as it is, and Australian economic activity similarly on the improve, the numbers to be reported should be solid. As ever, the focus of the market however will be on forward guidance, and in the case of the US, investors will be eyeing management statements about issues such as wages and the impact on forward ordering activity of tariff policy.
In Australia, employment growth has been terrific, and the continued weakness year to date in the AUD has been of further help.
Our economic blind spot, if indeed we have one, will again be housing and construction. We have made much of the slowing in house prices and the impact on household confidence and construction sector activity, but I would be sure to highlight that we are only seeing the thin end of the wedge right now.
Bank credit rationing will continue for at least another 6 months, but already the impact is being felt across construction markets.
Of note this past fortnight, Australian new home building approvals plummeted -10% on the month in May, and further to that it is hard to ignore the easing in overall NAB Business Confidence through May and June, such that confidence is now at a 12-month low, employment conditions have eased to an 18-month low and forward orders have similarly fallen.
With construction work now making up just under 10% of the workforce, and having grown at 3x the pace of general employment, we should be watching this issue closely.
Again, reasons for caution.
CORE HOLDINGS IN THE PORTFOLIO THIS WEEK
On a positive note, we were really impressed to see Magellan Financial Group (MFG) post some strong guidance for performance fee revenues in its monthly statement this week. MFG has bounced over +5% since our recommendation, and I think in time, the stock has real potential for significantly greater gains.
The fact it carries a 5%+ fully franked dividend yield furthers its attractiveness to local income focused investors.
Pendal Group (PDL) on the other hand got beaten up this week for disclosing slightly weaker performance fee revenues to be expected. The stock actually fell almost -10% on the week, which is a gross over-reaction.
We were a little early on this stock, and I will cop to that, but we are really warming up to PDL again around current levels as we think the underlying JO Hambro fund performance is actually on the improve, and that 2019 will be a year when much like MFG, analysts will be upgrading forecasts from what are already rather cheap valuation levels (<14x 2019 P/E).
Afterpay Touch (APT) continues to soar, trading north of $11 and up 80% in a matter of months. This week we saw that APT had begun a new promotion with Revolve Clothing in the US, further lending credibility to their rollout plans.
Revolve have 2.4m Instagram followers, and like Urban Outfitters, are a hugely influential fashion brand amongst APT’s targeted millennial cohort.
Next week we should see a trading statement from APT, updating customer and retailer numbers, and importantly lending some information as to the early progress of their US rollout.
As with any stock that runs as hard as APT has, even with confirmation of good news, the stock has potential for a pullback – the travelling proves more fruitful than the ‘arriving’ as they say.
That being said, we trimmed some of our holding only a fortnight ago in the mid $9’s and already have been made to look silly for doing so.
In all, I think APT is a $20 stock, so for any of you not to have bought it yet, please keep this on your watch list and please be sure to buy the dip when or if it occurs.
For now, that’s it. Remain patient.
Friday 10am values
|S&P / ASX 200||6268||+52||+0.8%|
|Property Trust Index||1437||+13||+0.9%|
Thursday Closing Values
|U.S. S&P 500||2798||+61||+2.2%|
Key Dates: Australian Companies
|Mon 16th July||Div Pay Date – MBLHB, MXUPA
|Tue 17th July||Div Pay Date – Betashares Ishares & Vanguard ETF’s
|Wed 18th July||N/A
|Thu 19th July||N/A
|Fri 20th July||N/A
13th July 2018, 1200pm
For more information on the above please contact, Robert Flynn, Senior Financial Advisor, Bentleys Wealth Advisors directly or on 02 9220 0700.
This information is general in nature and is provided by Bentleys Wealth Advisors. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.