Real Estate Sector – Now Oversold

Posted on | by Leon Hinde | Leave a Comment on Real Estate Sector – Now Oversold

As bond yields have pushed higher in recent weeks, following global central banks hawkish tone, we’ve seen capital rotate out of yield sensitive names such as infrastructure and property and  into financials & resources.

The rotation now leaves property stocks approaching an oversold price zone.

The chart below provides a broad-based picture of the listed property stocks within the ASX 200, via the SLF.AXW (SPDR ASX200 Listed Property ETF).

Our Algo Engine has triggered a buy signal at or near $12.00.

Chart – SLF

 

ALGO Update: IPL Showing Increased Upside Potential

Posted on | by Todd | Leave a Comment on ALGO Update: IPL Showing Increased Upside Potential

On May 23rd, the ALGO engine triggered a buy signal in IPL at $3.40. Since then the stock has traded in a moderate range of $3.30 to $3.60.

While we view the outlook as broadly positive given the ramp up of the WALA ammonia plant in Louisiana and domestic fertilizer demand, this has been offset by the upcoming change in their CEO and declines in global fertilizer prices.

IPL is currently trading at 30% discount to its North American peers, and at 13x  estimated FY 18 earnings, we see the upside potential into the $4.15 range over the medium-term.

At the same time, we expect the 2017 EPS of 21 cents to rise to 25 cents in FY18, which puts the stock on a forward yield of 4%.

IPL

 

ALGO Update: Buy Signals For GPT, SYD and TCL

Posted on | by Todd | Leave a Comment on ALGO Update: Buy Signals For GPT, SYD and TCL

Over the last three weeks, shares in local infrastructure and property trusts have really taken a beating.

Some of the yield-sensitive names have lost between 5 and 10% as Australian interest rates in the 2yr to 5yr tenors have followed global interest rates higher.

One of the major aspects of the recent rise in rates has been the consensus amongst G-7 central bankers that the era of low rates and financial stimulus will be coming to an end.

It’s our base case that the market has gotten ahead of itself with the prospects of sustainable higher yields.

With global equity markets still at elevated levels, a material repricing, or “risk-off” period, in the market would increase the demand for “safe haven” government bonds, which would ease rates lower.

The specific stocks that we are following include GPT, TCL and SYD.

The ALGO engine triggered buy signals in these three names at yesterday’s close.

Given the sharp sell off that these names have seen over the last few weeks, we feel the upside potential is an reasonable trade.

GPT

TCL

SYD

QANTAS: Share Price Reaches High Altitude

Posted on | by Todd | Leave a Comment on QANTAS: Share Price Reaches High Altitude

Shares of Qantas reached a 10-year high of $5.90 on Friday as investors respond to several broker valuation upgrades and the rumor of a credit rating upgrade from Moody’s investor services.

One of the reports forecast a target of $7.09 with an expected dividend of 15 cents per share, which would be more than double the 7 cents per share posted in FY 2016.

With internal momentum indicators now in overbought territory, we suggest a price reversion lower over the short-term. We will watch the ALGO engine for new signals and expect initial support in the $5.15 area.

QANTAS

 

Softness For Housing Credit

Posted on | by Leon Hinde | Leave a Comment on Softness For Housing Credit

The Reserve Bank of Australia has released its financial aggregate data. Over the 12 months to May 2017, total credit provided to the private sector increased by 5.0%.

However, for the first time since 2011, the annual growth in dwelling loan approvals turned negative. This has also coincided with a slowdown in loan size growth.

We’re likely to see softer housing credit growth over the next 6 to 18 months.

The major banks  have responded to the lower housing loan growth by  announcing mortgage re-pricing starting with investor & interest only loans.

We believe the net-net impact on bank earnings will result in flat EPS growth over the next 12 – 24 months with the unknown risk being the potential pick-up in bad-debt provisioning.

Chart – MVB

 

 

 

 

 

Chart Update – XJO

Posted on | by Leon Hinde | Leave a Comment on Chart Update – XJO

The ASX200 finished the week up 0.1%. The materials sector was up 2.7% and the the worst performer was the Property Trusts sector, down 4.9% with Stockland down 5%.

The chart below shows a further “lower high” pattern in the index. Thursday’s top at 5820 is now the third counter trend rally that has failed, since the minor downtrend started on the 1st of May, after topping at 5956.

We view 5850 as a key market level and as long as the index trades below this level, caution for downside range extension is advised.

Chart – XJO

ETF UPDATE: US Dollar Gets Steamrolled By Central Banks

Posted on | by Todd | Leave a Comment on ETF UPDATE: US Dollar Gets Steamrolled By Central Banks

In the lead-up to the long July 4th holiday, the FX market is usually pretty quiet; this was not the case this week.

In an unprecedented development on Tuesday, officials from the ECB, Bank of England, Bank of Canada and the US FED delivered speeches that outlined higher domestic interest rates and removal of stimulus sooner than the market had expected.

Since the US FED is the only central bank currently with a tightening bias, the news that other G-7  rates could all rise in unison was negative for the Greenback.

The USD Index lost over 2% for the week including a 1.6% loss to the Aussie Dollar. The AUD/USD tested the March high of .7730 before falling back to .7680 at the New York close.

The Aussie also got a lift this week as former RBA board member John Edwards expressed his view that the RBA will likely initiate eight 25-basis point rate increases over 2018 and 2019. Considering the pressure this would put on the local mortgage market, we don’t agree with Mr Edwards’ forecast.

The central bank will meet next Tuesday and we expect RBA chief Phillip Lowe to walk back on those comments and maintain the stance that any strength in the AUD/USD is a headwind to domestic growth and exports.

In the bigger picture, it’s likely that the narrowing yield differentials between US and Aussie rates will continue to favor the USD over the AUD.

Investors looking to profit from a lower AUD/USD can look to buy the BetaShare ETF with the symbol: YANK.

YANK is an inverse ETF with a market weighting of 2.5%. This means that a 1% move in the AUD/USD will translate into a 2.5% move in the unit price of YANK.

With a current unit price of $13.85, we consider YANK to be a reasonable addition to client portfolios. We estimate that when the AUD/USD trades back to the January low of .7160, the unit price will be around the $16.50 level.

BetaShare ETF: YANK