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ASX staring down best month since 1998

Daily Market Update (44)

ASX staring down best month since 1998, Treasury Wine (ASX:TWE) corked by China, but iron ore immune
 
The ASX200 (ASX:XJO) finished higher for the fourth straight week adding 1.0% despite falling 0.5% on Friday.

The vaccine-led recovery means the index is sitting on the best gain in over 30 years whilst leading our global peers having now controlled COVID-19.

Cyclical sectors were the week’s winners, led by energy and materials, as signs of a sustained economic recovery saw the oil price rally and the iron ore price remain around USD$130 per tonne.

BHP Ltd (ASX:BHP) finished the week 7.1% higher after falling 1.2% on Friday with high quality iron ore seemingly immune from the worsening trade dispute with China.

On the other hand, Bega Cheese Ltd (ASX:BGA) has been a beneficiary of the Australian Government’s decision to ban Chinese buyer from the purchase of Lion’s Dairy and Drink’s business, with a successful capital raising sending the share price 9.8% higher on Friday.

Whilst international borders remain firmly closed, the listing of domestic borders buoyed the travel sector, with Webjet (ASX:WEB) a key beneficiary for hotel and regional holiday bookings growing 7.8% in the week.
 
Trade relationship worsens, collateral damage, US markets move higher again
 
The worsening relationship between China and Australia has seen another major casualty with Treasury Wine Estates (ASX:TWE) owner of the ubiquitous Penfold’s brand falling 11.3% on Friday before entering a trading halt.

Investors had gotten wind of the impending imposition of tariffs on Australian wine imports in China. It is clear the Chinese Government is seeking greater self-sufficiency with Australian wine the latest target.

The government is set to apply tariffs of between 107% and 212% to exports that currently equate to some 40% of Australia’s $1.25 billon in annual exports and a major source of TWE’s revenue.

It is becoming increasingly evident that Australia’s relationship with China will be the most powerful theme of 2021 and beyond.

Turning to the US, news that President Trump would vacate the White House when the Electoral College confirms Joe Biden was received positively on an otherwise quiet day, the S&P500 finished 0.2% higher and the Nasdaq another 0.9%.

Similarly to Australia, US markets are closing in on the best month in several decades, the weekly returns finishing at 1.6% and 2.5% with energy and oil prices a key driver.
 
Key takeaways: AGMs demand greater accountability, property the centre piece, IPO market bubbles over
 
With AGM season coming to an end, pressure on management and boards to be accountable for major strategic decisions has come into focus.

This week it was shareholders in IOOF Ltd (ASX:IFL) questioning the price and justification for the purchase of MLC’s financial advice particularly in light of the increasing regulatory pressure on the sector.

The week saw the delivery of the Victorian State Budget delivered with the tried and true ‘fiscal stimulus’ focused once again on the construction and housing sectors.

The reduction in stamp duty and increased first home buyer’s grant, combined with mortgage rates below 2% suggests the only way is up for property in the short-term.

The bigger question however is whether this sort of spending has the same multiplying effect it used to, particularly when our CBD’s and the businesses that inhabit them remain deserted.

The week also saw the end of what has been one of the more remarkable runs for IPO in recent history, with the listing of law firm HWL Ebsworth and Fantastic Furniture both dumped.

It was clear that investors had become more wary as the flood of listings continued with any business operating in e-commerce seeking eye watering multiples.

Small cap IPO’s remain a high-risk proposition despite the market recovery. 

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