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13/05/19
       
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Local Market

The Australian share market finished up slightly on Friday, in choppy trading as investors kept a wary eye on developments in US-Chinese trade talks.

The benchmark S&P/ASX200 index closed up 15.6 points, or 0.25 per cent, to 6,310.9 points, while the broader All Ordinaries finished up 15.8 points, or 0.25 per cent, to 6,393.1.

Overall the ASX200 finished the week down 0.39 per cent, its second straight losing week.

While the US more than doubled tariffs on China at 2pm AEST, traders saw that as a negotiating tactic in their ongoing trade dispute. High-level officials were still meeting Washington trying to salvage a deal.

All sectors on the ASX were higher except for miners were flat, with the defensive utilities sector leading the way, collectively up over two per cent.

Spark Infrastructure was up 3.64 per cent to $2.28, AGL Energy was up 2.14 per cent to $22.96 and Infigen Energy was up 4.6 per cent to 45.5 cents.

BHP was down 0.49 per cent to $36.80 while Fortescue Metals gained 1.07 per cent to $7.54.

Three of the big four banks gained, with Commonwealth up 0.31 per cent to $75.40, NAB up 0.12 per cent to $25.94, and Westpac up 0.59 per cent to $27.22. ANZ fell 0.54 per cent to $27.50.

News Corp's ASX-listed shares gained 1.03 per cent to $16.75 after the media giant posted $US23 million ($A32.9m) net income for the third quarter, with the consolidation of Foxtel and a strong performance by HarperCollins offsetting a decline in news and information earnings.

REA Group shares were up 0.91 per cent to $81.88 after the realestate.com.au operator said its third-quarter revenue rose seven per cent to $198.6 million as it increased fees to make up for a drop in listings.

Infratil shares were placed in a trading halt after the New Zealand infrastructure company prepared to make an announcement about the potential acquisition of Vodafone NZ.

Synlait Milk shares dropped 4.06 per cent to $9.46 after the New Zealand dairy company said a court ruling would complicate its plans to open a second nutritional powder manufacturing plant on land in Pokeno.

The Court of Appeals re-imposed covenants on the land restricting its use to grazing and forestry, meaning near-complete factory is in breach of the restrictions.

The Aussie dollar is buying 69.94 US cents, from 69.78 US cents on Thursday.

This week, Commonwealth Bank will give its third quarter trading update on Monday, while Xero will announce its full-year results on Thursday.

Three of the four big banks go ex-dividend in May which may put some pressure on the market.

International Markets

Stock valuations have climbed to levels reached just before Wall Street's late 2018 plunge, leaving the market at risk of shocks such as the sell-off this week as global trade tensions mount.

But stocks may have more support than last year, due largely to lower bond yields and a more dovish outlook on interest rates from the Federal Reserve.

Under the traditional price-to-earnings (P/E) ratio method of valuing equities, stocks recently rose to their most expensive level since September. The benchmark S&P 500 index peaked last year on 20 September, before sliding nearly 20 per cent over the next three months.

The forward P/E for the index, which compares stock prices to estimated earnings over the next year, had climbed recently to 17 times, making the index about 13 per cent more expensive than its historic average, according to more than 30 years of data tracked by Refinitiv.

After the S&P 500 hit record highs last week, Trump spooked stocks by threatening over the weekend to raise tariffs on Chinese imports. This ratcheted up tensions in the long-running trade dispute between the world's two largest economies. Investors who had been optimistic about a US-China deal now fear such a deal may not happen anytime soon.

The S&P fell early on Friday but finished slightly higher after remarks from Trump and other officials fed hopes that Washington and Beijing would avoid the worst-case scenario of a complete breakdown in negotiations.

The Dow Jones Industrial Average on Thursday rose 114 points, or 0.44 per cent, to 25,942.37; the S&P 500 gained 10.68 points, or 0.37 per cent, to 2,881.40; and the Nasdaq Composite rose 6.35 points, or 0.08 per cent, to 7,916.94.

As of Friday's close, the S&P 500 was about 2.2 per cent below its all-time high close, which in turn reduced the forward P/E multiple on the S&P 500 to nearly 16.8 times, still well above the historic average of 15.1 times. On Friday, the S&P 500 rose 0.4 per cent.

Debate about valuations has taken hold broadly. Just this week, the Fed called stock prices "elevated" in its latest financial stability report.

Stocks may have a cushion, however, with lower interest rates, which help the allure of stocks.

The yield on the benchmark 10-year US Treasury note sits at 2.46 per cent, after eclipsing 3.2 per cent in November, making bonds look less competitive as an investment versus equities. Stocks are typically valued through by estimating their future cash flows, which are more valuable at lower rates.

The Fed, meanwhile, has signaled little appetite to adjust rates any time soon. As recently as December, the Fed had anticipated further rises in borrowing costs in 2019.

Source: Morningstar

CEO/MD Weekly Commentary
Davide Bosio discusses renewed interest in the global battery and lithium markets following the recent Wesfarmers takeover of Kidman Resources.
Regal Investment Fund – Public Offer

DJ Carmichael Pty Limited (“DJC”) has been invited to participate in a public offer (“Offer”) being undertaken by Regal Investment Fund (the “Fund”).

The Fund is seeking to raise up to $500 million via the issue of 200 million fully paid ordinary units (“Units”) at an issue price of $2.50 per Unit, to be issued as soon as practicable.

Offer Units will be issued pursuant to a product disclosure statement that was lodged with the Australian Securities and Investments Commission (“ASIC”) on 8 April 2019 (“PDS”). The PDS can be accessed here. Investors should read the PDS before deciding whether to invest.

Participation in the Offer is available to all retail, Sophisticated and Professional Investors.

The Fund is a newly constituted managed investment scheme, which has been registered with ASIC. Following completion of the Offer, it is proposed that the Fund will be listed on ASX as an investment entity and trade under the ASX Code RF1.


Information on the Fund

 Equity Trustees Ltd, the responsible entity of the Fund (“Responsible Entity”), has entered into an investment management agreement with Regal Funds Management Pty Ltd (“Manager”) that authorises the Manager to provide investment services to the Fund.

The Fund’s portfolio will be constructed by the Manager using multiple investment strategies and will comply with the Fund’s investment guidelines

The Fund’s investment objective is to provide investors with exposure to a selection of alternative investment strategies managed by Regal, with the aim of producing attractive risk adjusted absolute returns over a period of more than five years with limited correlation to equity markets.

The Manager will have ultimate responsibility for the Fund’s portfolio. The Manager has appointed an Investment Committee who will be responsible for determining the capital allocated to each investment strategy, ensuring that the portfolio complies with the Fund’s investment guidelines and managing the portfolio’s exposure to markets, derivatives and cash.

The Fund’s structure as a listed registered managed investment scheme allows investors to access an investment management capability typically only available to wholesale investors.

The Fund will also provide investors with exposure to the Manager’s investment expertise and the opportunity to capitalise on the Manager’s 15-year multi award winning track record of managing alternative investment strategies through multiple market cycles.

The Responsible Entity intends (but doesn’t guarantee) to distribute all distributable income annually but it may do so more frequently at its discretion.

An indicative timetable for the Offer is set out below:

*The Fund has the right to close the bookbuild early with no notice

DJC will receive a fee of 1.5% plus GST on funds raised. For example, for an allocation of $10,000, DJC will receive $150 of which the Adviser will receive $75.

Please ensure you contact your Investment Adviser by 10.00am WST Thursday, 23 May 2019 if you are interested in participating in the Offer.

CLICK HERE to read the PDS
Finance News Network
DJC has recently partnered with the Finance News Network to bring the latest market news, company updates, interviews and more to our website.

The tabs are updated throughout the day and can be found on our home page or by clicking on the following link: https://www.djcarmichael.com.au/stockbroking/fnn

 
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This Research Report expresses the personal view of the Author. DJ Carmichael Pty Limited, including authors of this report, its directors and employees advise that at the time of publication they hold or may become entitled to securities of the issued capital of the company and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions in stocks mentioned in this report.


The recommendation made in this report is valid for four weeks from the stated date of issue.  If in the event another report has been constructed and released on the company which is the subject of this report, the new recommendation supersedes this and therefore the recommendation in this report will become null and void.
 
Recommendation Definitions:

SPECULATIVE BUY – Potential 10% or more outperformance, high risk
BUY – Potential 10% or more outperformance
ACCUMULATE - 10% or more out-performance, buy on share price weakness
HOLD – Potential 10% underperformance to 10% over performance
SELL – Potential 10% or more underperformance
Period: During the forthcoming 12 months, at any time during that period and not necessarily just at the end of those 12 months.

Stocks included in this report have their expected performance measured relative to the ASX All Ordinaries index. DJ Carmichael Pty Limited’s recommendation is made on the basis of absolute performance. Recommendations are adjusted accordingly as and when the index changes.

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