From Jonathan Bayes, Investment Consultant, Bentleys Wealth Advisors.
A slightly better tone to markets, but only modest gains locally and in the US. Asian markets tended to do better, driven in large part by the conciliatory tone taken by Chinese President Xi Jinping in his Boao Forum address.
In his address Mr Xi conceded ground on automotive tariffs in particular, and also promised a more rigorous standard for protection of intellectual property in China, directly responding in kind to President Trump’s attack on Chinese policies in these two key areas.
Markets took the speech as encouraging, and a de-escalation of the rhetoric on trade protectionism witnessed in the previous fortnight.
The optimistic tone to markets ignored the potential for an uptick in military action in Syria this weekend, with the US and France both on the cusp of a co-ordinated response to the Assad regime’s alleged use of chemical weapons just over a week ago. Russian television has been scaremongering its citizens with the prospect of confrontation with the United States, and it seems the potential for a marked escalation in the current stand-off is rising by the day.
Slowing in the rate of business momentum
On the data front this week, business confidence in both the United States and Australia eased back a shade from its highs. In Australia, the pullback was actually rather notable, and somewhat of a surprise, with the sub-indices for capital expenditure, employment, new orders and trading profitability all falling back rather substantially.
I don’t expect this is something to worry about, and suspect this is just a step back from recent strength, but it is something to watch for next month. Business conditions last month were seen to have eased to just under a 12-month low, which as I say, surprised me a little.
In the US, small business confidence pulled back to a 5-month low, and should be watched going forward. Small business is the lifeblood of the US economy and the number one beneficiary of much of Trump’s economic agenda this past 18 months. Again, much like in Australia, the pullback isn’t cause for concern, but does at the very least reflect a peaking in the surging rate of economic growth there.
RBA remarks – same old, same old
The RBA were in the headlines this week, but in truth they said very little new. The RBA Governor Philip Lowe is working his hardest to talk with caution about the future, highlighting the likelihood of higher interest rates in the future, and the substantial risks accumulating in the global financial system from debt bubbles in China, but in truth these aren’t new, and nor are rates likely higher in Australia anytime in the next 6-12mths to my thinking.
Single-stock news in Healthscope (HSO), Downer (DOW) & QUBE (QUB) & Afterpay Touch (APT)
HSO was in the ‘The Australian’ twice this week with rumours swirling of private equity interest in the hospital operator. We clearly wouldn’t know, but we do feel pretty confident in HSO shares and their likelihood of some solid gains as the company draws closer to the opening of its flagship Northern Beaches hospital asset mid-Q4.
In the near term, HSO will likely sell its Asian pathology operation, freeing up any perception of an overloaded balance sheet. On top of that, we are likely to learn more of the operational synergies being targeted within the wider portfolio at the full year results in August.
Though it is unlikely to impact anytime soon, this weeks news of Federal Government support for the Melbourne Airport rail link is welcome for infrastructure-linked stocks such as DOW and QUB and further demonstrates the substantial infrastructure spend ongoing in Australia over the coming decade. We like both companies a lot, and think both look great value at current levels.
Lastly, our recent small-cap recommendation APT has been in the press a lot this week, with the knives out to take down this high-flying success story. I would encourage all to read todays AFR piece on the APT founders and some detail on the technology and company strategy. It’s a good one.
At an operational level, APT disclosed its quarterly user data this week and it was all largely in line in terms of user growth and credit quality, but a shade light in terms of average spending patterns.
In truth, the analysts perhaps failed to model the slowdown in retail spend from the peak Christmas quarter to March, such is the rapid rate of growth APT have achieved in recent years. Expectations were a little too high, and even APT suffers from the seasonal spending slowdown that occurs at this time of year.
Beyond this however, it is hard to fault the company. The group avowed to tighten up ID checks and lending criteria’s, engaged an external consultant to learn more about their client base, changed their policies to cap late fees and thus to reduce any so-called regulatory risks in that regard (though I think these risks were overstated anyways), and lastly brought forward plans to update the market on their US strategic rollout.
All of this is constructive.
The US strategy update will now occur in May, bringing forward potential good news by as much as 3 months.
Djerriwarrh (Investments (DJW) – a lesson against backing the status quo
There was no news in DJW this week, but in the last few days I cast my eye over DJW having advocated for selling the blue-chip investment company a few years ago.
DJW was once a stalwart in portfolio’s given its heavy concentration in Australian blue-chip shares, and traded to an eye-watering 35% premium to underlying asset value for a considerable period of time.
We argued of the absurdity of this back in 2015 on the basis of the premium to underlying value, but also on account of the LIC’s exposure to what amounted in our minds to the ‘favoured share holdings of yesteryear’ – banks, grocers, miners and Telstra (TLS).
Looking at DJW today the LIC has underperformed the ASX200 by over 30% in the past 2+ years, and is now back at a 3% premium only to its NAV. I would argue that the LIC will continue to underperform in the years ahead given its still significant overweight exposure to Australian ‘large-cap’ shares.
Just an interesting observation I thought.
Friday 10am values
| Index | Change | % | |
| All Ordinaries | 5911 | +23 | +0.4% |
| S&P / ASX 200 | 5816 | +27 | +0.5% |
| Property Trust Index | 1307 | -9 | -0.7% |
| Utilities Index | 7354 | -94 | -1.3% |
| Financials Index | 6099 | -24 | -0.4% |
| Materials Index | 11402 | +358 | +3.2% |
| Energy Index | 10598 | +266 | +2.6% |
Thursday Closing Values
| Index | Change | % | |
| U.S. S&P 500 | 2664 | +1 | – |
| London’s FTSE | 7258 | +58 | +0.8% |
| Japan’s Nikkei | 21660 | +15 | +0.1% |
| Hang Seng | 30831 | +1312 | +4.4% |
| China’s Shanghai | 3180 | +49 | +1.6% |
Key Dates: Australian Companies
| Mon 16th April | N/A
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| Tue 17th April | N/A
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| Wed 18th April | Div Pay-Date – Vanguard ETF’s (VACF, VAF, VAP, VAS, VGB, VGE, VGS)
|
| Thu 19th April | N/A |
| Fri 20th April | AGM – APN Outdoor (APO)
Div Pay-Date – APN Outdoor (APO), QBE (QBE) |
13th April 2018, 14:00pm
Thursday Closing Values
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.
