BlueRock Investment Committee Market Update (16/02/2021)

Photo of the Enchanted Garden's giant chess board in the BlueRock Melbourne CBD office.
We're located in the Melbourne CBD.

While the US market continued to push further into record highs during the week, markets globally cooled briefly upon renewed US vs China tension, sparked by Biden’s call to Xi Jinping. In Australia, the market cooled off the back of negative news mainly attributed to Victoria going into lockdown and a mixed bag in terms of earnings results throughout the week.

What’s interesting here is how sensitive markets can be to vaguely negative news, when so much good news is baked in and stocks are trading at stretched valuations. Below is a graph showing the Price to Earnings (PE) ratio of the Australian stock market (All ordinaries). There is the small dip in early 2020 due to Covid, and then an unprecedented increase to the price of stocks, born off material government stimulus pumped into the market. The PE ratio shows that while prices have increased, company earnings have not; at least not yet. This suggests a disconnect from “Wall Street” (the share market) and “Main Street” (the underlying economy) and underpins one of the factors behind the changes made to BlueRock portfolios earlier this month.  

Sentiment in the US remains buoyed by optimism around Biden passing further government aid before the current federal unemployment program expires on March 14.

Domestically, we had our first week of earnings result announced from the large companies.  

  • The Commonwealth Bank showed improved strength in their balance sheet and announced an increase to their interim dividend.  
  • Telstra’s earnings fell however profits were largely protected through their substantial cost-cutting program. Investors reacted well to their above expected earnings guidance, leading to a 10c rally.  
  • AGL and Westfield showed the impacts of being in the wrong industry/ies during Covid with large asset write-offs and no dividends announced.

This week, notable earnings announcements that we will be watching for - Bendigo Bank, BHP Billiton Ltd, Woolworths, Afterpay and QANTAS.

On a final note, it was another busy week for the BlueRock Investment Committee as we assess the new position of the portfolios. Two weeks ago, we made some considerable changes and are pleased with the increased downside protection these changes provided. We expect to cautiously introduce concentrated and specific positions into portfolio which will aim to provide conservative upside exposure and take further advantage of a continued market rally.

Did you know?
BlueRock is a certified B Corp business.
Does that mean we didn’t make the ‘A-Team’? Far from it; landing a ‘B’ in this case is an affirmation of our commitment to being “a force for good” in the corporate arena.