May Market Overview

Jessica Amir
May 29, 2020

 

The Aussie share market moves out of bear market territory, hitting a 12-week high on news of further government stimulus and COVID-19 human trials kicking off. The Australian government downgraded JobKeeper dependency, seeing UBS increase its economic forecasts.

In this month’s wrap, Jessica covers:

  • The three key¬†themes that evolved this month (0:52)
  • COVID-19’s worst performer now shines, Southern Cross Media (ASX:SXL) (1:15)
  • Two stocks that charged after oil rebounded 81% (1:54)
  • Three strategic ideas for next month (2:45)
  • Six trading ideas as online retail is set to surge (5:01)
  • Shedding infrastructure and REITs to trade ‘working from home’ stocks (6:08)

 

Read Transcript

Welcome to the monthly wrap, I’m Jessica Amir, a market analyst with Bell Direct.

The Australian Share Market hit a 12-week high this week and broke out of its 2020 bear market for the first time on Tuesday, on the back of 1. Further government stimulus being announced, 2. A COVID-19 human trial kicking off in Australia and 3. The Australian Government downgraded the job keeper dependency, now that saw UBS increase its economic growth forecast for 2020 from -6.1% to -5.2%.

In the month of May, 3 key themes evolved, firstly, there’s been a heavy rotation out of blue chip stocks into down beaten parts of the market.

The largest stock on the ASX, for example CSL (ASX:CSL) fell 7% dragging Health Care down 3% while the Tech sector sparked up 14%, but the downtrodden Real-Estate sector rose 9% with Stockland (ASX:SGP) up 25% on reports of launching a personal shopping service app, while the property giant that leases to DHL, VW, Coles and Kellogg’s, Goodman Group (ASX:GMG) they gained 17%, but the star of the show was Southern Cross Media (ASX:SXL) up 68% this month.

The TV and Radio business has been the worst performer since COVID-19 but continues to rally up given it strengthened its balance sheet.

Now the second theme gaining momentum is the rise of online payments with Fintech stocks like Afterpay (ASX:APT) rising 45% after gaining 9 million U.S customers while the digital payment business behind ApplePay and SamsungPay, EML Payments (ASX:EML), they gained 31% after announcing 55% earnings growth in nine months.

And the third theme was the oil price rebound of 81%, from $18.54 to $33.67 USD a barrel.

Two stocks that benefited from that were Santos (ASX:STO) and Oil Search (ASX:OSH) up 14% each. Santos rallied up as it upgraded production by 2% this year, and its first quarter sales beat UBS’ expectations.

Santos also has less debt than most of its peers, now Santos is backed by Citi as a high risk buy meanwhile Oil Search gained momentum as it’s closer to its PNG expansion and had drilling success in Alaska.

OSH is backed by UBS as a buy.

Now to strategy ideas for next month, well one of the things to think about is the expected surge in online retail given COVID-19 has changed our behaviors with less of us pounding the pavement and more of us shopping online, including previously reluctant demographics being forced to shop electronically too.

All reasons why Bell Potter forecasts online retail will double by 2023 to $6.5 trillion US, with over 2.1 billion of us tipped to shop online by 2021.

Secondly, another idea worth exploiting is the rise of working from home.

Morgan Stanley for instance wants to cut their office use by 25%, given half of their staff will be working from home to the end of 2020.

While twitter is allowing its employees to permanently work from home, so you’d expect many other businesses¬† to continue to follow this given the millions of dollars of cost savings.

So for you, what does that mean?

Well Real Estate office exposed stocks are likely to continue to drag along with Infrastructure related stocks like airports and toll road operators.

Now the third idea to consider, next month the market is up 27% in almost two months since the COVID-19 crash.

Now many think this record bounce was too much too soon particularly given COVID-19 impacts have not been fully reflected in economic data.

The RBA is expecting unemployment to peak mid-year and economic GDP will likely see its biggest decline in modern history.

We haven’t even seen the GDP data out yet, it’s out next Wednesday.

Now these are just some of the reasons why Morningstar says “there’s a lot of overconfidence in the market” and investors are “misperceiving and underestimating downside risk” when they should be investing for value, instead of following the crowd.

Citi says investors should be limiting their downside risks, as companies debt to equity ratios have gone up since February while price to earnings ratios, the amount of money you pay versus the earnings for a stock is now higher than in February too.

Meaning, you’re getting less bang for your buck as earnings less.

Now these are just some of the reasons why Citi expects that there’s a high chance the market will fall in the next 12 months.

Now to trading ideas, well for the online retail surge you might like to think about increasing your exposure to online retailers or companies benefiting from the thematic.

Bell Potter backs Afterpay (ASX:APT) as a buy along with City Chic (ASX:CCX) which is also backed by Goldman Sachs too.

The software car part seller and cloud car service company Infomedia (ASX:IFM) is backed by Bell Potter and UBS as a buy and UBS also backs Zip Co (ASX:Z1P), while Harvey Horman (ASX:HVN) is backed by Goldman Sachs and UBS.

Now to gain exposure to some of the largest tech names in the world like e-commerce giant Amazon (NASDAQ:AMZN) which is expecting over $4 billion in profit in the second quarter alone, you could buy the ETF-FANG. Now that’ll give you exposure to Facebook, Amazon, Netflix and Google just to name a few.

Now secondly, for the work from home trend, be cautious of exposures to infrastructure and office rates over the next few months.

On the flip side you could consider investing in cloud computing companies like businesses NEXTDC (ASX:NXT) which is backed by UBS as a buy. You also might like to consider taking advantage of the behavioral shifts to get outdoors and spend more time with family, so consider the owner of BCF, Rebel, Macpac and Super Cheap Auto, Super Retail Group (ASX:SUL) which is backed by Goldman Sachs and UBS as a buy.

Now thirdly, for the market running too fast too soon theme, be careful if you’re chasing the rally.

There’s always surprises in markets so consider averaging into the market over several weeks or months or if you’re bearish expecting the market to fall on weaker economic data earnings and U.S china attention, then you could hedge your portfolio by using ETFs, BEAR or BBOZ. Thanks for your company,

I’m Jessica Amir from Bell Direct, happy trading and stay safe.

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