Here’s what we’re seeing …

 Trading Observations

  • Equity markets appear to be taking their direction from the bond market;
  • Unwind of the carry trade intensified as volatility in bond and currency markets increased;
  • Gold price has taken its cue from the bond and currency markets and not the increased geo-political tensions;
  • AUD cracked when short positions were the lowest in a long time;
  • High p/e stocks were given the benefit of the doubt in reporting season;
  • Block trades have increased in recent times;
  • IPO’s have generally been well bid, however investors have  been quick to exit if initial expectations are not met in the secondary market;
  • IPO pipeline for the remainder of CY2014 appears to be strong;
  • Short selling in iron ore names has been very aggressive although some positions have been covered with traders not looking to hold for longer than a few days – are they expecting a short term bounce into the traditional re-stocking period; and
  • Resource names rallied on fund inflows (June/July) not commodity price moves or economic  data – once inflows stopped stock prices fell sharply.

Sector Themes

  • Building materials (a default holding in most portfolios) – First signs in reporting season that the bulk of the outperformance from this sector may have already been achieved. Peak multiple on peak earnings??
  • General industrials – There are signs of a bottoming in labour markets following declines in mining and the general weakness of the East Coast state economies;
  • Infrastructure – new thematic for FY16 and beyond. There is currently a gap before projects kick off but infrastructure spending will be strong for several years once projects begin; and
  • Media – A tough outlook in the short run due to a weak macro environment and cycling the federal election spending of the previous year. However, valuations are becoming compelling.
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