Equity&Super Daily Bulletin 18 February 2016

Local shares are set for a strong start with the futures pointing to a 1.7% rise after global equities rallied overnight, fuelled by a more than 7% rise in the price of oil. BHP also added 7% in London, with the Australian Dollar advancing 0.8%. The strong gains in oil resulted from news breaking that Iran supports the Saudi and Russian sponsored deal to cap production in an effort to stabilise prices. Reuters reported Mr Buffett is also betting on a recovery in oil from its near decade lows. Berkshire Hathaway on Tuesday disclosed a new investment in pipeline operator Kinder Morgan.

Jim Reid from Deutsche Bank made the statement overnight “While we have concerns about financial markets over a 1-3 year basis we can’t help thinking some of the negative catalysts that markets have had in the last two months are being becalmed.” So he is saying there is still some midterm volatility that needs to play out, however a lot of the negative sentiment has started to fade. With this in mind, Equity&Super continues a cautious approach to the current market and sees weakness as an opportunity for investment.

One stock that has continued to do well in the downturn since the start of the New Year is Wesfarmers. With a current broker consensus of $42.20 and the company taking on a lot more risk entering the UK home hardware market, the stock is starting to look overvalued in the current environment, and something we are keeping our eye on.

Figure 1 – Wesfarmers

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