Global Markets Overview - May 22, 2015
Banking (dis)order
Final trading day of the week and it will be the second negative week for May (unless we take off today which is unlikely). However, there was a nice trading development that begun to form on Wednesday afternoon that gives me a little more confidence heading into next week.
The ASX appears to be settling on a new support level at 5610 points. It has crossed that level twice but found exhaustion as the buying overwhelmed the bears. The main reasoning for the index collapse in the past six week has been the banks and they continue to pull the ASX into a new trading range.
So far, all the banks have technically corrected (10%) and more. The most savage selling has been seen in Westpac down 20.1% (which is technically a bear market) since its April high of $40.07 to the close of business yesterday.
CBA is down 13.6% from its intraday high, ANZ is down 13.5% while NAB has lost 14.9% which includes the 2 for 23 rights issue announced at its half year numbers. The banks make up 26% of the ASX and that kind of sustained selling on a quarter of the index will always drag trading lower.
I have argued of late that until the banks find support, the ASX will remain under pressure and that seems to be holding true. The issue as I see it is fundamentally, based on current estimates the big four banks still appear to be offering a premium price.
Here are the stats that matter
Commonwealth bank (CBA)
Earnings per share FY16 estimate - $5.52
Full year dividend - $4.01 = Yield of 4.8% based on the COB price
Price to earnings ratio 15.1 times FY15, estimated at 14.68 FY16
Price to book ratio 2.66 times FY15 estimates at 2.51 times FY16
Westpac (WBC)
Earnings per share FY16 estimate - $2.54
Full year dividend - $1.82 = Yield of 5.57% based on the COB price
Price to earnings ratio 13.3 times FY15, estimated at 12.86 FY16
Price to book ratio 1.98 times FY15 estimates at 1.88 times FY16
ANZ Banking Corp (ANZ)
Earnings per share FY16 estimate - $2.76
Full year dividend - $1.78 = Yield of 5.52% based on the COB price
Price to earnings ratio 12.2 times FY15, estimated at 11.67 FY16
Price to book ratio 1.67 times FY15 estimates at 1.58 times FY16
National Australia Bank (NAB)
Earnings per share FY16 estimate - $2.68
Full year dividend - $1.98 = Yield of 5.93% based on the COB price
Price to earnings ratio 12.38 times FY15, estimated at 12.42 FY16
Price to book ratio 1.64 times FY15 estimates at 1.59 times FY16
The fundamentals in ANZ, NAB and WBC will look more appealing than CBA no doubt. However, CBA has demanded a premium to the other three firms due to its scale in Australia. NAB on a yield and P/E basis appear the most appealing, however questions remain over its UK exit. There are signs in CBA and ANZ that a floor is forming – when that is confirmed, note what ratio premiums the market is willing to pay as possible future entry points. However, ANZ is being questioned on capital ratios and CBA has seen a marked decline in lending.
Finally, WBC; having had the biggest fall of all four it would likely be appealing to ‘bargain buying’. However, the results at the half year update are not overly compelling and unless they become more competitive in its traditional market of lending, it will underperform further.
None of the banks have confirmed a solid floor yet – but it is clearly approaching be ready for a bounce that should see the ASX back in the green as well.
Ahead of the Australian open
We are currently calling the ASX up 16 points to 5677 – oil bounced, iron ore bounced and the US is still grinding higher. The ASX should close the week with a positive print but down for the full week and the month – catch an eye on the banks however.
Asian markets opening call | Price at 8:00am AEDT | Change from the Offical market close | Percentage Change |
Australia 200 cash (ASX 200) | 5,677.90 | 16 | 0.28% |
Japan 225 (Nikkei) | 20,257.50 | 56 | 0.27% |
Hong Kong HS 50 cash (Hang Seng) | 27,647.10 | 124 | 0.45% |
China H-shares cash | 14,206.90 | 75 | 0.53% |
Singapore Blue Chip cash (MSCI Singapore) | 387.60 | 0 | 0.06% |
US and Europe Market Calls | Price at 8:00am AEDT | Change Since Australian Market Close | Percentage Change |
WALL STREET (cash) (Dow) | 18,291.00 | 37 | 0.20% |
US 500 (cash) (S&P) | 2,131.53 | 10 | 0.52% |
UK FTSE (cash) | 7,017.40 | 22 | 0.34% |
German DAX (cash) | 11,874.90 | 48 | 0.41% |
Futures Markets | Price at 8:00am AEDT | Change Since Australian Market Close | Percentage Change |
Dow Jones Futures (June) | 18,267.50 | 35.00 | 0.19% |
S&P Futures (June) | 2,128.63 | 10.00 | 0.47% |
ASX SPI Futures (June) | 5,685.00 | 19.50 | 0.38% |
NKY 225 Futures (June) | 20,272.50 | 87.50 | 0.43% |
Key inputs for the upcoming Australian trading session (Change are from 16:00 AEDT) | Price at 8:00am AEDT | Change Since Australian Market Close | Percentage Change |
AUD/USD | $0.7898 | 0.0003 | 0.03% |
USD/JPY | ¥121.035 | -0.015 | -0.01% |
Rio Tinto Plc (London) | £29.00 | 0.33 | 1.15% |
BHP Billiton Plc (London) | £14.05 | 0.10 | 0.68% |
BHP Billiton Ltd. ADR (US) (AUD) | $29.30 | 0.06 | 0.21% |
Gold (spot) | $1,206.45 | -3.83 | -0.32% |
Brent Crude (July) | $66.50 | 1.28 | 1.96% |
Aluminium (London) | 1775.5 | -6.00 | -0.34% |
Copper (London) | 6264.5 | 48.50 | 0.78% |
Nickel (London) | 13030 | -50.00 | -0.38% |
Zinc (London) | 2206 | 2.00 | 0.09% |
Iron Ore (62%Fe Qingdao) | $57.91 | 0.79 | 1.38% |
EVAN LUCAS Market Strategist
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