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In her monthly review, Julia discusses:

  • Top & bottom performers (1:01)
  • Banks – morgage repricing (1:57)
  • Political risk – sectors under pressure (2:37)
  • Positioning post reporting season (3:29)

The Australian share market has closed off the month with fresh decade highs. This marks the fifth consecutive months of gains. That’s the longest straight gains seen for the market since 2009. So, it finally feels like a bull market and of course this is on the back of reporting season.

Highlights were in the small and the mid cap space, where Retail Food Group was up 57% for the month, Wisetech up by 40% for the month and Appen up by 40% for the month, while the large cap stocks did lag.

Top ASX200 best performers:

  • TPG – up 53% on the back of news of the merger with Vodafone,
  • Appen – up 40% on the back of its results with profits doubling
  • Wisetech – up 40% after its results

Bottom ASX200 best performers:

  • Speedcast – down by a massive 34%.
  • Pact Group – citing rising costs with the stock down by 25% for the month
  • Sims Metal – down by 24%

One of the things we will be watching through the next few months is banks repricing their mortgage books. Dividends are a big driver of banks shares and we need to see something underpinning earnings given the headwinds for the banks at the moment. Westpac was first off the ranks, increasing its rates by 14 basis points and we are expecting to see other banks to follow suit. If we do see banks repricing their books by around that amount, we should see 2-4% earnings uplift for banks, which would be supportive near term

In Australia, we’ve seen great political risk, which means that certain sectors are under pressure or could be under pressure because of regulatory risk. Some of the areas that we’re watching are franking credits, as well as private health insurance. If Labour wins government, we could see a cap on premiums to the tune of around about 2%. We’re also watching negative gearing, which could impact on the residential property space.

Post reporting season, we’re moving to equal weight in Telecom. The telecom sector has been one of the best performers in this space. We’re also positive on healthcare and liking stocks including Mayne Pharma, Sigma, Nanasonics, as well as CSL. We’re seeing some positive updates from China facing businesses like Blackmores, A2 Milk and Bellamy’s.

In the material space, Bora and Rio Tinto are looking positive. We did see rising raw material costs as a feature this reporting season. We are also cautious the battery theme with these type of commodities coming under pressure in China; Syrah, Orocobre, Western Areas are some of those stocks that we are cautious.

Overall, we’ve seen reporting season coming in on expectations. We haven’t seen a huge amount of misses but some impressive performances from the small mid-cap space, technology and healthcare.