The S&P/ASX 200 (XJO) and All Ordinaries (XAO) are set to follow US markets lower this morning as Melbourne prepares to go back into lockdown.
Stock market recap
Despite a strong overseas lead, the ASX 200 paused on Tuesday, pushed marginally lower by the reinstatement of stage 3 restrictions in Melbourne.
A strong lead from the ASX mining sector, particularly gold with St Barbara Mining Ltd (ASX: SBM) adding 10.3%, wasn’t enough to overcome an afternoon collapse in the property and travel sectors.
Just four of the eleven sectors were positive, with A-REITs down 1.7% on the back of a fall in shopping mall owners Scentre Group (ASX: SCG) and Lendlease Group (ASX: LLC), both down more than 4%. I have reiterated the risk of the A-REIT sector on many occasions, with multiple shutdowns a real risk to the profitability of these businesses, particular should major tenants like Target or BIG W depart.
It was a similar story in the US, with record new cases causing a reversal of recent loosenings, sending the S&P 500 down 1.1%. American Airlines (MYSE: AAL) and Carnival Corp (NYSE: CCL) each fell by more than 6%.
Active investing works?
It turns out active managers can outperform, with both Magellan Financial Group Ltd (ASX: MFG) and Australian Ethical Investment Ltd (ASX: AEF) improving 2.7% and 8.2%, respectively. The former announced net inflows of $249 million in June, just as the market peaked, and the latter raised profit guidance after its ESG-focused Emerging Companies Fund outperformed by ~7% for the financial year.
In a sign that times really are changing, Coles Group Ltd (ASX: COL) announced that its November AGM will be held virtually, in what should be a boon for registry providers like Link Administration Services Ltd (ASX: LNK).
Whilst I’m somewhat tired of wiring about the company, Afterpay Ltd (ASX: APT) remains in the news. Yesterday, the company reported a 112% increase in sales to $11.1 billion and an opportunistic $800 million capital raising as it seeks to expand into Canada. Interestingly, Afterpay’s co-founders are selling around $250 million worth of shares, which is never a great sign.
Uber makes an acquisition
The pronouncements of lower returns from sharemarkets for the next 10 years are once again being heard from ‘experts’, the same comments made three years ago before markets eventually pushed closer to all-time highs. As always, I suggest forecast be put to one side and investors focus on investing in quality, growing companies regardless of the environment.
The booming food delivery sector is seeing another round of consolidation, with Uber Technologies (NASDAQ: UBER) buying delivery app Postmates for US$2.65 billion in equity. In my view, anyone selling a company should be seeking cash and not equity, no matter the quality of the buyer.
The economic news was generally positive, with the Reserve Bank of Australia leaving rates at 0.25%, but its comments quickly out of following the Victorian Prime Minister’s conference at 3.15pm.
Italian retail sales recovered, up 24.3% and only down 10.5% on 2019’s figures, while Japanese spending was down 16.2% on 2019 but only 0.1% on May. The European economy appears to be moving forward faster than the US, with Louis Vuitton Moet Hennessy (PA: MC) adding 0.3% despite the rest of the market falling 0.9%. The luxury retail conglomerate is a solid buying opportunity in my view.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.
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