POSTED BY ANGUS GEDDES
In Asia markets were weaker on Thursday with the Nikkei falling 0.28% to 22,694 and the ASX off 0.18% at 6,011. In China the CSI 300 fell back by 0.59% as Beijing and the Hang Seng fell back by 0.19% to 29,166.
The Hong Kong IPO of China Education was priced at HK$6.45 with this in the middle of the HK$5.86 and HK$7.02 offer range. The IPO was four times oversubscribed and is expected to start trading on Friday.
The Hong Kong Monetary Authority and the People’s Bank of China also followed the leader, by increasing rates 0.25%. The Hong Kong dollar is pegged to the US dollar and monetary policy therefore moves in tandem with the US.
Indian banks were in favour yesterday with HDFC Bank and ICICI Bank up 1.86% and 1.69% respectively with inflation in November rocketing past the RBI’s target of 4.2 – 4.6%. The CPI inflation reading in November was 4.9% which was the fastest growth in 15 months and far ahead of consensus estimates of 4.28%. Unseasonal rains have pushed up food prices, with higher oil prices and a continued economic recovery in India also playing a part. Rising inflation and interest rates will be positive for financials, and the growth potential in India is significant with many in the population still ’unbanked’.
In Australia the market broke a five day winning sequence on Thursday, with the ASX200 trading down 10 points at 6011. Energy stocks though were higher, while resource stocks were generally firm. South32 was a standout, rising 3% after receiving an upgrade from Morgan Stanley. We bought the miner for the managed accounts around the lows early last year, and also hold it in the Global Contrarian Fund. It has been a strong performer, and I expect this to continue next year.
I have wrote about the earnings upgrades that are going to come through on the resource sector, and the consequent scramble by institional analysts, and Morgan Stanley have sounded the gun on South32. The broker is forecasting share buybacks of US$1.25 billion from FY17 to FY20, which is equivalent to 10% of the company’s market cap. This higlights what we have known – South32 is an impressive cash generator, has a great balance sheet and is highly leveraged to further gains in commodity prices.
Have a great weekend!