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The Aussie share market is set for its best monthly gain since January this year. This week, the focus has been on the Banking sector, with some of the banks releasing their half-year results.
In this month’s wrap, Jessica covers:
Welcome to this monthly update, I’m Jessica Amer a market analyst with Bell Direct.
While at the close of trade on the 28th of this month, the Aussie share market gained 5.7% so far in April.
Now that puts the market on pace for its best monthly gain since January this year.
Most sectors have charged up with growth sectors like Information Technology doing well up 16%, Consumer Discretionary rising 11% and Energy gaining 10%.
Meanwhile Defensive sectors like Telcos, Staples and Utilities didn’t see much shine and this is typical in a risk on environment with investors more optimistic about the future and willing to buy stocks in the face of 1. COVID-19 lock downs and 2. Unprecedented government and central bank support.
Now on the downside, Financials have fallen into the red losing 4%, with Westpac (ASX:WBC), NAB (ASX:NAB), Bendigo (ASX:BEN) and ANZ (ASX:ANZ) all losing ground after announcing results or write downs, with some also announcing the need to raise more capital from their shareholders.
Now looking at stocks, the best performing in the ASX200 is Afterpay (ASX:APT) up 51% after March sales came in at their third best monthly sales on record.
On the flipside Metcash (ASX:MTS) which is the owner of IGA, Mitre10 and Celebrations, well that stock has seen the most selling losing 21% after needing to raise $300 million via an institutional placement, while it also advised hardware sales were down and food and liquor sales were up.
Now the new Metcash (ASX:MTS) shares came onto the market last week diluting shareholder value, as a result five brokers cut MTS’ 12-month price target including Goldman Sachs, which is now targeting $3.10 and Macquarie the least bullish a 12-month target of $2.65 for Metcash.
But of course the focus for many has been on the banking sector given it makes up 30% of the Aussie share market.
This month the second largest bank in Australia Westpac (ASX:WBC) saw it’s shares lose 10%.
It forewarned its going to write off or impair $2.2 billion of charges largely from COVID-19 impacts, which also eliminates surprises before it hands down its half-year results next Monday.
But what’s really important to remember is Westpac raised $2.8 billion late last year, so you’d think the bank could absorb this write off and not need to raise further capital.
So for shareholders this means it could avert further downward price pressure.
This is why brokers including JP Morgan moved the Westpac to an overweight exposure with Bell Potter also upgrading the stock to a buy saying its shares could lift 20% in a year.
Now to NAB (ASX:NAB), Australia’s largest business bank it announced half-year results this week the first of the big-four bank to report financial results.
Now NAB halved its profit and cash earnings dropping its interim dividend by 60% taking its shares or taking its interim dividend to 30 cents per share and it also launched a $3.5 billion capital raising to bolster its balance sheet so it can navigate the looming recession.
The bank also wrote down or impaired $1.1 billion in costs which factors in lending losses mortgage defaults and other COVID-19 economic impacts but the bank highlighted in its results its capital raise and write downs it should help it navigate the uncertainty, which is why the full year dividend yield of 3.8% is expected.
Now on the economic front, NAB expects GDP to sharply fall and then rebound in the fourth quarter, remaining negative until early 2022. But more imminently, NAB is forecasting the unemployment rate will peak by June this year at 11.7% and reduce next year.
All in all for NAB, UBS and Bell Potter maintain NAB as a hold with Bell Potter’s 12-month price target now $17 and UBS at $16.50. Now let’s look at stocks in the banking sector that are growing their EPS cash flows and revenue, remembering growing earnings typically drives a share price growth.
Using Bell Direct’s strategy builder, I added those the filters also screening for companies with low debt to equity ratios, remembering the higher the ratio the higher the debt to equity ratio the more leverage the company is.
But of the nine stocks, the company with the smallest debt to equity ratio was Auswide (ASX:ABA).
Now what else to watch next week, well interest rate decisions and trade data, the RBA meets on Tuesday with interest rates tip to remain on hold at 0.25% but investors will be looking for any hint of further stimulus.
Now over in the UK, the Bank of England also meets on Thursday with markets there pricing in their interest rates will remain on hold at 0.1% and trade data comes out for the U.S and Australia so we’ll learn how much our economy made money in terms of exports in March and how much we imported as well, now that data is out on Thursday with estimates suggesting Australia’s trade surplus could have halved during the month.
Now in the U.S they’ll get their import/export data sooner than us next Tuesday.
So there’s plenty to watch and lots of stock ideas for 2020.
I’m Jessica Amir with Bell Direct, happy trading and stay safe.Close Transcript