IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

End of financial year – So what have we learnt?

Today is the final trading day of the 2013 financial year , a year that has seen ‘whatever it takes’ and has produced a 713 point gain across the financial year (+17.4%).

In a total return sense this year will end up right in the centre of the bell curve. The average total return for a financial year is in the 10-20% bracket and it will take a might effort today to break into the 20-30% bracket. As a comparison, the best year of the last five has been 2009, however that was due to a massive bounce post the GFC and the fact the market was coming from a low base, add some 30+% and the most comparable year was last year where the index added 25%.

The stand out sector for this year was always going to come from the defensives. The financials (+30%), consumer staples (+25%) and the telecommunications (+31%) have all seen investors scrambling for yield over the last twelve months and have bid up these sectors strongly , but the winner was always going to be a group with both yield and exposure to the US, and that means healthcare was always going to be the stand out. The sector added 42.64% this financial year as the likes of RMD, CSL and even COH all saw good returns.

Getting stock specific and the winner of 2013 (ASX 200) is Sirius Resource up 3,553% as the miner’s copper and nickel discovery saw the stock taking off. Since the announcement, SIR has been on a tear, however with the commodities space slowing and SIR yet to produce a solid income stream, the full upswing has been lost slightly.

Magellan Financial Group (MFG) will finish in second place, up 382% in a year where financial management and exposure to yield has been key. The group’s global funds have seen massive inflows as the US and Europe took off on Mario Draghi’s comments in July 2012; helping the stock to its lofty highs.

The bottom two stocks in the ASX 200 need no introduction. Discovery Metals (DML) takes the wooden spoon, down 91%, and has dropped right out of the 200 with a market cap of just $58 million. Their sole copper and silver mine in Botswana started the rot hitting production and staffing troubles mid-year and was then slapped with the fact that silver entered a very strong bear market - this shredded DML.

Sliding in to second last is no other than Billabong (BBG). The never ending story of BBG has seen the stock losing 84% in FY13 and the fact that most of that time was spent in a trading halt as takeover after takeover mulled over the books before shelving the plans could have seen BBG even lower. The story isn’t getting better as this week saw HSBC and Comm Bank selling out of the loans to BBG - a sign the sinking ship may not have sunk far enough for investors.

Moving to the top 50 and the top performer in this space has been MQG adding 62.95% as the restructure finally takes traction and market participants return to Australia’s largest investment bank as the market moved higher. In close second is IAG up 61.58% as the insurer continues to outpace its peers.

The bottom two come as no surprise, both have been unable to stay out of the spot light as gold and iron ore slid and production costs ballooned. NCM, the one-time darling of the broking world is down 54.9% year to date and the best description of NCM we have heard is from an Adelaide broker; calling it the ‘broker killer’. The amount of mums and dads in NCM over the years has been large and these losses will be hard to take.

Second-to-last place is FMG, down 36.48% as plans were shelved, reinstated, and then found cash concerns. The biggest pure play in the country still derives 98% of its earnings from China and as news of a slowing dragon grew so did the sellers in the third largest miner in the country.

Moving to the final trading day of the financial year and ahead of the open today, we are calling the ASX 200 up 25 points to 4837 (+0.52%) to finish the year on a positive note. BHP continued to battle short sellers yesterday and today will be no different as BHP’s ADR suggest the stock will only add a cent today to $31.48, what might aid its cause is the fact iron ore finally bounced up 1.5% to $115.30.

So that leaves one question remaining, what is in store for 2014? Quite a lot – a federal election, Fed tapering, Chinese cash squeeze and a slowing global economy.

Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9282 -0.0021 -0.23%
USD/JPY 98.3050 0.2250 0.23%
ASX (cash) 4837 25 0.52%
US DOW (cash) 15010 76 0.51%
US S&P (cash) 1610.4 6.9 0.43%
UK FTSE (cash) 6225 34 0.54%
German DAX (cash) 7971 7 0.08%
Japan 225 (cash) 13388 174 1.32%
Rio Tinto Plc (London) 27.00 0.50 1.91%
BHP Billiton Plc (London) 17.45 0.72 4.30%
BHP Billiton Ltd. ADR (US) (AUD) 31.48 0.01 0.04%
US Light Crude Oil (June) 96.82 0.87 0.91%
Gold (spot) 1200.75 -39.1 -3.16%
Aluminium (London) 1771 -10 -0.55%
Copper (London) 6739 -7 -0.11%
Nickel (London) 13819 81 0.59%
Zinc (London) 1849 4 0.19%
Iron Ore 115.30 1.5 1.30%

IG provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

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