by David Rogers
The Australian sharemarket has surged to fresh decade highs, spurred on by earnings-focused investors as the August corporate reporting season hits top gear.
Bucking a sell-off in commodity prices and Asian equities, the S&P/ASX 200 share index jumped 0.5 per cent to 6329 points yesterday — its highest since early 2008.
Investors were encouraged by positive results and outlook statements from major companies, with CSL up 6.4 per cent to a record high of $214.68, and Wesfarmers up 3.2 per cent to a record $52.20.
Computershare and Dexus surged after better-than-expected results, while ANZ and NAB rallied after encouraging trading updates this week.
The market was also helped by bargain hunting in Cochlear, Brambles, AGL and Domino’s Pizza, which briefly disappointed investors in recent days.
Afterpay Touch was the biggest gainer of the top 200, surging 8.5 per cent to a record high close of $16.39.
Pact Group was punished, though, plunging 22 per cent on a disappointing earnings report.
The rally in the local bourse was unusual because it bucked sharp falls in base metal prices and Asian shares after a the recent two-day plunge in the Turkish lira rippled through emerging markets, adding to jitters about the global economic outlook amid a worsening US-China trade war.
China’s Shanghai Composite tumbled 2.1 per cent, the Hang Seng fell 1.5 per cent and the Nikkei 225 lost 0.7 per cent yesterday despite a 0.5 per cent rise in the S&P 500 after the Turkish lira stabilised.
Base metal prices were very weak, with London Metal Exchange copper futures down 2.1 per cent to a 14-month low of $US2.61 a pound, zinc down 2.5 per cent and nickel down 2 per cent.
Similarly, in crude oil, West Texas futures were down 1 per cent at $US66.40 a barrel in early European trading.
The Australian dollar hit a fresh 19-month low of US72.03 cents.
The commodity price falls restrained mining and energy stocks with OZ Minerals down 4.6 per cent, South32 down 3.7 per cent, Rio Tinto down 0.7 per cent and Woodside down 0.5 per cent.
In the short term the resources sector should catch up because China is likely to increase its policy stimulus to offset the economic slowdown caused by its recent deleveraging efforts and the worsening tariff war, according to Wilson Asset Management chairman Geoff Wilson.
If the S&P 500 and Dow Jones Industrial Average continue to avoid a collapse this month, it will be the longest bull market for the broader US sharemarket in history.
“What worries me is we are in the mature stages of the bull market and while all the US economic numbers seem positive, what we are seeing now in the US economy is the positive flow through of the Trump tax cuts,” Mr Wilson said.
“What we haven’t seen, and what will come over next 6-to-12 months, will be the negative impact of the increase in tariffs associated with the trade war.
“There’s a window for gains in the next few couple of weeks.
“Obviously the big driver will be how the rest of the reporting season goes.
“The banks obviously have felt the brunt of the negative sentiment from the royal commission and so are probably a little bit oversold.”
Having recently bought shares in companies that are expected to deliver strong results this earnings season, Mr Wilson’s $1.66 billion WAM Capital reduced its cash reserve to 17 per cent from 29 per cent as of June 30.
But he said he would be looking to increase that to around 35 per cent in the weeks ahead.
“More from a short-term tactical perspective, we have increased our equity weighting over the last month,” Mr Wilson told The Australian.
“We’ve deployed it into companies that we think will deliver above-expectation results in this reporting season. Short term, we’re more bullish. Medium to long term, we’re still very nervous.”
Despite positive guidance from a number of companies so far this earnings season, Mr Wilson cautioned that tariff wars combined with US Federal Reserve and European Central Bank plans to reduce liquidity would eventually weigh on asset prices.
“The interesting thing in the US is that when you speak to the companies they are positive, but when you speak to the equity market participants they are nervous.”
Echoing a recent prediction by Magellan CEO Hamish Douglass, Mr Wilson warned that there could “easily be” a 30 per cent correction in the US sharemarket.
“We’ll be lifting our cash level back over 30 per cent after the reporting season and that’s the view that we are in the very mature stages of the bull market.
“The million-dollar question is how long it will keep going up and it’s impossible to predict, but we are getting towards the end.”
WAM Capital had 35 per cent in cash before the global financial crisis, according to Mr Wilson.
In his view, the dollar will fall below US70c as interest rate differentials become increasingly negative.