Capital raisings were scarce, with takeovers becoming the flavour of the month (AWB, Aevum, and Intoll Group – along with other corporate activity following Foster’s, Orica and Corporate Express).
Channel Seven Group Holdings Ordinary Shares moved higher by circa 7.00% from month open to close, finishing at $6.13, on the back of valuation buying.
The government’s scrapping of the proposed Resources Super Profits Tax (RSPT) was viewed as a major milestone, achieved days into the new month – and has ceded to equity market’s a far more palatable fall-back position, with prospect of further improvements in the design of the MRRT over the course of negotiations. Downside risks do exist, though the prominent inclusion of Don Argus in the process provides us with some relief.
Our continued approach to asset management remains one of conservative and cautious investment, with a preference for select securities where a valuation gap exists. Always ensuring that asset allocations do not favour Australian Equities beyond the naturally justifiable level for each investor.
Our view in relation to equities for 2010 and beyond remains firmly focused on what we can control, namely a resilient tax-effective income yield – and to lock in profits and alpha where appropriate, while aiming to protect capital at all times.
Now more than ever, a spread of investments is proving necessary and beneficial, given the propensity for exogenous shocks across economies, sectors and individual businesses alike.
The month of July saw positive performing index results enjoyed by Financials (2.24% outperformance), and Industrials (2.97%). Whereas underperforming sectors included; Gold (10.32% under), Health (3.36% under), Information Technology (8.23% under), Telecommunications (4.70% under), and Property (3.24% under).
At an index level of 4,50740, and 31 December 2010 forecast index level of 4,880.20,the remaining positive anticipated return for 2010 is in the order of 8.27%, with 5 months to acquire the upside, pointing to 1.65% per month return, simple non-compounding.
Key challenges for 2011 Financial Year (1 July 2010 to 30 July 2011)
China – are the brakes already being applied, or is the growth-engine slowing of its own accord?
Minerals Resources Rent Tax – is this acceptable? Does this resolve the uncertainty, and remove the Sovereign Risk Premium that some believe is now attributable to an investment in Australian Equities?
A European Resolution – will structural issues be addressed, can growth and austerity coexist? When will sustainable growth be achieved?
Listed Property Trusts – will the recovery story continue?
Liquidity and leverage – will liquidity of investment assets sustain, or will long-term liquidity be jeopardised by mandated selling, and unwinding of excessive asset positions funded by unwise loans the world over (Investment Banking exposures most notably)?
Credit availability – what spreads will emerge for lower credentialed borrowers, and to what extent will lending growth be curbed?
Will Stress Tests in Europe trigger a positive/negative re-rating, and drive a resolution to the trust/reputational impairment consequent from Greece’s sovereign dismay?
To what extent will profit guidance to date prove to be a clear indication of the true colour of June 2010 Half Year Australian reporting season. Is the confession period indicative of overly optimistic revenue and margin forecasts across the board, with revenue falling short of their high-end numbers?
Capital Raisings and Volumes – will big companies come back to the capital raising tap for more equity, and what depressive effect (if any) will this have on prices across the board?
Risk aversion – how much new ‘fear’ can enter the market without substantial new information shifting the playing field?
How much further does the mining boom have left to run – when will Coal and Iron Ore self-correct (if they do)?
Will those stocks with a sensitivity to inflation, consumer spending, and Interest rates deliver above average returns from here on in, or have these prospective gains (on account of a steady, slower raising cycle) been already fully enjoyed by holders at the start of July?
Will equity investments regain favour? Can confidence return to prior levels, and what additional catalysts may drive an about-face on sentiment, and risk-tolerance?
Will the lazy balance sheet tag re-emerge and tar a company for the missed opportunities, overlooking the strength and safety of the asset balances?
Interest Rates: To what extent will our growth and inflation be constrained from the natural course? How blunt will this instrument prove to be on housing sector and discretionary spending?
Australian Dollar – where is this headed, short, mid and long term?
We continue to monitor and reassess each of these unanswered questions that we believe will guide the market’s fate over the coming year ahead.
We are most happy to discuss each item with you at our next engagement.