The relief rally continued yesterday in the Australian market signalling to all investors three things; 1. The offshore driven sell-off continues to be worth using as a trigger for prudent stock accumulation, 2. Reporting season thus far has been in line with expectations in the larger end of the market, and 3. Some of the negative trade themes in high quality resources is starting to turn more neutral.
Overnight actions between the Saudi’s and Russia on a production freeze is another small step that will help stabilise oil, and also add support to the likes of BHP and Woodside in the Australian market. The recent low points on both these stocks in January has now seen a price recovery in February of 8.08% and 5.69% respectively (see figure 1 for recent Woodside move in the last 30 days). If this support grows for Materials and Energy and you get domestic buying of banks, then an index recovery to above 5,000 points is on the cards again. Much of the broad based recent selling has been driven from offshore related to currency and credit uncertainty.
At the stock level both National Australia Bank and CSL reported yesterday, indicating results were fairly in-line with expectations. With a difficult domestic economic backdrop, reporting moderate growth and results in-line with expectations will be a huge pass mark for the larger Australian corporates this reporting season. We still remain interested in acquiring Ramsay Health Care below $58.00, and see any price weakness in Magellan Financial Group and Realestate.com.au as an opportunity. We also see the recent price weakness in Bendigo Bank as now overdone, with it trading at $8.80 and on a yield of 7.61% (fully franked).
Figure 1 – Woodside (WPL) 30 Day Rolling Chart