Bentleys Wealth Advisors Weekly Update – 29 October 2018

From Jonathan Bayes, consultant Chief Investment Officer, Bentleys Wealth Advisors


Things got a little serious this week.

At least that’s the sense I get from talking to the advisors and to investors.

Now, what’s going on!

It is our belief that the ASX200 was within sight of its lows. The ASX200 is now at its lowest level since late 2016 and as the chart below demonstrates, the forward valuation of Australian shares is now at a 5-year low point (P/E 14.3x)

A picture tells a thousand words – chart above shows the ASX200 forward P/E reverting back to a 5-year low point of approximately 14.3x.

We think there is good buying to be had in several Australian shares, but that doesn’t mean we are bullish on the market in general, it simply means that the market shakeout has provided some interesting opportunities for contrarian investors to take advantage of.

There remains reason for caution what with the Italian Budget situation, concerns on a peaking in US growth, waning Chinese economic momentum and local to Australia, long term issues around household debt and housing, and the uncertainty related to next year’s Federal Election.

But if you have cash on hand as we have long advocated for, then as the opportunities arise, you can deploy some of those funds on select opportunities.

This week in the midst of heavy selling across the board, we were blessed with the revised takeover bid for Healthscope (HSO) at $2.36. This time we think the deal is a serious one and stands a strong chance of going through.

With increased confidence in the HSO takeover, we were able to be more confident in the idea of buying some dips in other selected recommendations.

There are swings and roundabouts.

We remain of the view that share-markets have likely peaked, that U.S wage inflation is a real risk and that Australia’s economy is surely set to slow over the next 6 months.

This is precisely why we have been and continue to be over-weight of cash amongst several other portfolio nuances.

But, the ASX200 in particular is now back at a 5-year valuation low, and many companies now look excellent value. Housing is a problem, and household debt here will be a major drag on consumption for the next 12 months, but we also have a heavy infrastructure spending commitment from both sides of politics, and if Labor do happen to triumph next May you should expect to see the combined impact of wage growth and government spending lead to a more optimistic outlook for 2020.

In very small quantities locally, and perhaps in Asia too, this long suffering ‘Chicken Little’ is prepared to see the glass as half empty after this fall.

PS Australian major banks all report next week and the week after. It won’t be great, and I can’t say we are fans, but it would take a lot to see these shares lower in the very near term.


Thursday 5pm values

Index Change %
All Ordinaries 5760 -290 -4.8%
S&P / ASX 200 5664 -278 -4.7%
Property Trust Index 1377 -13 -0.9%
Utilities Index 7298 -277 -3.7%
Financials Index 5534 -252 -4.4%
Materials Index 10977 -609 -5.3%
Energy Index 10814 -984 -8.3%


 Thursday Closing Values

Index Change %
U.S. S&P 500 2706 -63 -2.3%
London’s FTSE 7004 -23 -0.3%
Japan’s Nikkei 21269 -1389 -6.1%
Hang Seng 24994 -461 -1.8%
China’s Shanghai 2604 +118 +4.7%


Key Dates: Australian Companies

Mon 29th October N/A
Tue 30th October AGM – Vocus (VOC), Reliance (RWC)
Wed 31st October Results – ANZ Bank (ANZ)AGM – BWX (BWX), Healthscope (HSO)
Thu 1st November Results – National Australia Bank (NAB)AGM – Crown (CWN)
Fri 2nd November N/A