The Match Out: Market down but shows resilience, Lithium stocks hit on Chinese demand concerns

The ASX showed a decent underbelly today rallying well from the midday low to close only marginally down on the session. US Futures edged higher + the minutes from the last RBA meeting showed a pause on future hikes remains a possibility – both had buyers back from the sidelines, with tech & most commodities enjoying the buy-the-dip mentality – the MM Flagship Growth Portfolio which is skewed to IT & Materials was down ~60bps below the index this morning, before closing ~30bps above it, showing the clear change of trend intra-day.

• The ASX 200 finished down -4pts/ -0.07% at 7141
• The IT sector was best on ground (+1.68%) while Healthcare (+1.41%) & Industrials (+0.45%) were also positive performers.
• Property (-1.30%) and Materials (-1.01%) the weakest links, although most materials recovered from early weakness.
• Lead Portfolio Manager James Gerrish was on Talking Finance with Alan Kohler discussing bond yields and what they mean for valuations – Listen Here
• Commonwealth Bank (ASX: CBA)  +1.31% released quarterly numbers this morning that were positive - margins look sector-leading.
• Lithium stocks were hit on negative news/rumours of weaker demand from Chinese cathode producers. Pilbara (ASX: PLS) knocked by 8.7%, more on this below.
• AGL Energy (ASX: AGL) -1.17% drifted lower as shareholders elected all four of Mike Cannon-Brookes’ proposed directors to the board at the AGM today. He holds 11% of the stock and now controls ~40% of the board, not a bad outcome for Grok!
• CSL  +1.47% caught our eye today with the stock looking bullish after a period of consolidation.
• Whitehaven Coal (ASX: WHC) -0.84% closing at $8.23, a near~30% pullback from recent highs. Now looks interesting again.
• Elders (ASX: ELD) +4.7% recovered some of yesterdays declines, although now looks too hard in the short term given weaker than expected guidance.
• Iron Ore was flat in Asia, Fortescue (ASX: FMG) -0.77% while RIO added+0.40%
• Gold was also flat trading ~US$1771 at our close.
• Asian stocks were strong Hong Kong ripped +4.08%, Japan +0.17% while China was up +1.55%
• US Futures are all up, around +0.50%

ASX 200 Chart

Commonwealth Bank (ASX: CBA) $106.48

CBA +1.31%: Out with a quarterly trading update today that seemed strong on the data provided, noting that not a huge amount of detail is given quarterly. Margins looked to be sector leading and while they don’t give a specific Net Interest Margin (NIM) result for the 3 months, UBS noted their expectations that NIM expanded by >25bps QoQ, stronger than any of the other majors and reflected the benefit of their retail deposit base. Bad debts were as expected while costs were slightly higher.

We think a sector-leading result from the sector leader, with MM remaining long CBA in both the Flagship Growth & Active Income Portfolios. In terms of valuation, it’s always expensive, but it’s not excessively so versus history, trading on 17.5x forward P/E versus 16.2x historical average with the range being between 12-21x.

CBA Price to Earnings (forward)

Lithium

Lithium stocks tumbled today, making up 8 of the worst 10 performers in the ASX200 for the session. The move came after rumours a Chinese battery manufacturer was set to significantly cut output expectations resulting in softening demand for the battery mineral by as early as the middle of next year. The news caused one Chinese lithium futures price to drop by more than 7% in the session, though the rumours are yet to be confirmed, or the company expected to downgrade been named. Pilbara (PLS) was caught up in the selling, and adding to the pain was AusSuper whose holding fell below the significant shareholder threshold after being net sellers for much of the last week.

Broker Moves

• Flight Centre Cut to Lighten at Ord Minnett; PT A$13.71
• Newcrest Raised to Overweight at JPMorgan
• Lynas Cut to Neutral at Macquarie; PT A$9.10
• Ramelius Cut to Neutral at Macquarie; PT 90 Australian cents
• Ramsay Health Raised to Overweight at Wilsons; PT A$69.31

Major Movers Today

Have a great night

The Market Matters Team

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