Investment advice, trading strategies and share recommendations from Matt Felsman - Shaw Stockbroking Ltd.
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Sydney NSW 2000
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MONDAY 1/6:
New day, new week, new month. Oil prices fired over the weekend, up nearly 5% - expect strength in related companies today, opposite for iron ore, gold flat. A lower $AUD makes Australian shares more appealing to international money, one could also argue the outlook is now back to continued low interest rates in Australia – yield plays.
 
Today we see Chinese Manufacturing data – a leading indicator of economic health.
 
Sandon Capital Investments, Sunland Group, Technology One trade ex-dividend today.
 
UGL releases a market update. 12% of shares on issue are short, the 7th most shorted stock on our market.
 
Sirtex shares resume trading today – results look good!
 
The Australian Bureau of Statistics releases building approvals figures for April and business indicators for the March quarter.
 
Busy week of data: Tomorrow: Reserve Bank of Australia board meeting on cash rate – no change widely predicted. Wednesday: Australian GDP. Thursday: Retail sales and export/import figures. In the U.S. we see jobs data Friday – see the whole “good news is bad news” below.
 
In the U.S. in In May only about 6.05 billion shares were changing hands a day, making it the slowest month in trading since November, when about 6.04 billion shares were traded each day.
 
The Organization of Petroleum Exporting Countries (OPEC) meet Friday – they agree on how much oil they will produce, key to oil prices.
 
Quote of the day: ““You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” - Warren Buffett
 
I will be on Sky News Business the Friday at 5:30pm.
 

Three 6 Month Plays:
 
A higher $USD/lower $AUD & Rising U.S. Interest Rates:
 
QBE Insurance Group Ltd (ASX: QBE)
A big theme moving forward will be stocks with higher $USD/lower $AUD exposure and beneficiaries of higher U.S. interest rates. The perfect play for this is QBE. Generating earnings in $USD and a good chunk of profit from a conservative investment portfolio for the cash it holds, meaning any increase in U.S. interest rates will help considerably increase portfolio earnings.
 
Transition to growth from yield & A higher $USD/lower $AUD:
 
International:  WisdomTree (ETF) India Earnings Fund (NYSEARCA:EPI)
 
With India’s emerging middle class, reform agenda and sheer size, there is much to be made of the country's transition. In 2014 the India Earnings Fund returned 29.78%, with many institutions, investors and SMSF’s just waking up to this now. Another bonus is buying this ETF in $USD gives you indirect exposure to the higher $USD/lower $AUD trend currently about to break 6 year lows and continue to fall.
 
Merger & Acquisition trades/arbitrage & Agribusiness:
 
Webster Limited (ASX: WBA)/BUY:Tandou Ltd. (ASX:TAN)
A merger between the largest Australian walnut producer and a business with one of the largest water rights portfolios in Australia. Creating an agribusiness game changer and tripling Webster’s market cap. Buying Tandou creates a trade arbitrage and discounted entry to Webster, providing the merger goes through.
 

Overall Views:
 
Markets:
 

  • Time to start getting cautious as U.S. markets continue to trade at “record” highs with little volume and a narrow trading range.
  • Earlier last month U.S. Federal Reserve head Janet Yellen came forward and suggested stock prices were “quite high”.
  • Two weeks ago Yellen said interest rates are likely rising this year – bad for markets as other investments become more appealing.
  • If the US share market has a major sell off, it's highly likely the local market would have one too. But rather than be spooked by the move, it could be a good entry point for investors
  • Themes: Lower $AUD/higher $USD, transition of money into growth based stocks with value, agribusiness, keep eyes peeled for M&A trades/arbitrage.
 
Preferred stocks: QBE, WBA/TAN, MQG, BOQ, VOC, AGF

 
Gold: (Neutral to Bearish – avoid)
 
  • Higher rates – in the U.S. – gold does not yield anything.
  • Gold is considered a hedge against inflation – low overall despite a recent good report
 
Iron Ore: (Bearish – recent strength short term consolidation only - avoid)
 
  • Spot price around $62 when futures around $50 – long term view bearish
  • Citi and Goldman Sachs reiterating calls for a slump to the low $US40s or below.
 
Oil: (Bearish – short term consolidation after pretty much halving last 12 months - avoid)
 
  • Lower oil price will persist when there is more supply then demand – Companies compensate for losing $$ from lower oil prices by pushing volume.
  • A stronger U.S. dollar makes oil more expensive for buyers holding other currencies.
AT A GLANCE:

In the U.S. Friday the Dow Jones Industrial Average declined 115 points. Mixed data and choppy trading as investors rebalanced their stock positions for the month's end. Headlines today are beaming about soft U.S. economic data, but U.S. GDP actually came in above economists’ estimates (U.S. GDP came in at -0.7%, -0.8% forecast – beating forecasts) and consumer sentiment was positive. My view is any news that suggests the economy is recovering will be taken as a negative as the market will read this as an opening to the possibility of rates rising earlier than expected, this coupled with Greece/Europe concerns hurt on Friday.
 
Agree with Charlie Aitken – “Don’t be misled by the negative US GDP print from Friday night. It is backward looking and potentially statistically misleading. The US equity, bond and currency markets broadly ignored it and so should you. They were only down because of European wobbles on Greece again. What we should all be focused on now is cash rate “lift off” in September.”
 
On Friday I was massively surprised we finished up, maybe a bit of end of month window dressing or simply some bargain hunting as a lower $AUD (down around 3% in a week, six week low) makes Australian shares more appealing to international money, one could also argue the outlook is now back to continued low interest rates in Australia – financials finished the day the best performing sector. In local economic news on Friday, the Housing Industry Association released its monthly survey showing new home sales hit a fresh five-year high. We finished up 83 points.
 
Investors are increasingly worried that Greece and its creditors could fail to reach an agreement on reforms tied to its bailout and Athens could struggle to meet looming debt repayments next week.
 
An earthquake with a magnitude of 7.8 struck deep underground about 1,000 kilometers (621 miles) off Japan, causing tremors in Tokyo and power outages.
 
The second bomb attack in a week on a Saudi Shi'ite mosque in the country's oil-rich Eastern Province helped spark the price gains in oil over the weekend – up nearly 5%.
 
Embattled Australian communications company NewSat has been given a glimmer of hope by the supplier of its long-coveted satellite Jabiru-1. A spokesperson for leading defence manufacturer Lockheed Martin said over the weekend that it would be willing to discuss new terms for the completion of Jabiru-1.
 
In IPO news, Murray Goulburn has named the magic number for its offerings that are part of a $500 million capital restructure plan. The dairy co-operative lodged its prospectus on Friday, which included and indicative price range of $2.10 and $3.20 for the initial public offer and for a separate supplier priority offer.
 
18 Share Tips to BUY, SELL & HOLD from Australia's leading brokers: http://www.thebull.com.au/premium/a/54096-18-share-tips---1-june-2015.html
 
Read this: http://www.afr.com/personal-finance/shares/how-to-use-fall-in-market-as-a-buying-opportunity-20150529-ghbc2a
 
The Lamborghini Aventador Superveloce - http://www.bloomberg.com/news/articles/2015-05-28/the-lamborghini-aventador-superveloce-blew-my-mind-in-barcelona
 

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