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Regal's March performance caught in market ructions

Vesna Poljak

Regal's small companies strategy was the worst performer of the five strategies that are behind the Regal Investment Fund listed investment company, and its 23 per cent March portfolio loss.

According to the monthly update by the LIC known as RF1, small companies fell 46.1 per cent, market neutral 32.7 per cent, Australian long-short equity 28.4 per cent, and emerging companies 14.5 per cent.

The big exception was global alpha, which returned positive 15.5 per cent. Its NAV is $2.07 a share.

"While we had been wary of the growing infection rates of the COVID-19 virus, we underestimated the speed and scale in which the pandemic would take hold and the impact this would have on asset prices globally," the fund manager's update said.

"A number of strategies have seen significant repositioning over the month and we are pleased with the NAV performance for the April month to date."

US exit plan adds to ASX gains

Luke Housego

The S&P/ASX 200 Index has ended its fourth consecutive week of gains, rising 1.86 per cent to 5487.5 over the four-day week.

Friday saw the market gain 1.3 per cent off the back of guidelines released by the US government on easing containment measures.

The benchmark is now 20.7 per cent above the low set on March 23 but remains 23.4 per cent off its February record high.

Mayne Pharma was the best performer among the top 200 on Friday. Its shares rose 9 per cent.

Notable gains were also posted by Stockland, which rose 8.5 per cent, Estia Health, which climbed 8.4 per cent, Sydney Airport, which added 8.3 per cent.

After releasing company updates, Coca-Cola Amatil lost 6.1 per cent while Brambles gained 1.7 per cent.


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Chinese consumers "key area of uncertainty", says NAB

Robert Guy

NAB is wary of the muted rebound in consumer activity after China's economy shrunk 9.8 per cent in the first quarter.

While the year-on-year decline in gross domestic product of 6.8 per cent was worse than expected, a range of monthly data showed activity in the world's second largest economy started to pick up in March.

Consumer spending is expected to rebound in the June quarter. NAB

Industrial production in March increased 32 per cent month-on-month after a 24.9 per cent slump in February, but NAB highlighted how retail sales "lagged" with a 0.2 per cent month-on-month rise.

"While it is clear the industrial side of the Chinese economy bounced, it is less clear about the consumer side.

"The lack of a clear bounce in retail sales in March suggests there may be lingering effects of the pandemic on consumer behaviour.

"It is clear how it will play out in the economy, though there are signs that the consumer is bouncing back given the anecdotes of sales by LVMH."

Telstra to "realign" T22 strategy

Robert Guy

Telstra says work is underway to "realign" its T22 strategy as the telecommunications giant uses COVID-19 to make decisions about how it emerges stronger after the crisis.

The T22 strategy is aimed at simplifying Telstra's business and product offerings, and deliver a fixed cost reduction of $2.5 billion by the 2022 financial year.

At its half year results, Telstra said it had delivered cumulative cost reductions of $1.6 billion.

Telstra CEO Andrew Penn. Vince Caligiuri

In a letter to shareholders, chairman John Mullen and chief executive Andy Penn said they were focused on emerging from COVID-19 with strong growth potential from its core business.

"This includes new opportunities such as Telstra Health where we are providing additional funding to leverage our existing investments in digital technologies that support electronic prescriptioning, electronic medical records in hospitals and aged care, telemedicine where our volumes have tripled over recent weeks, and national registries which can play a crucial role in disease management."

"In line with these priorities, work is now underway to realign our T22 strategic roadmap and other planning mechanisms and to make decisions about what we maintain, what we pause and what we accelerate, to ensure that we emerge from this crisis in a strong position."

Earlier today, Telstra said it would go on a borrowing spree later this month, issuing €500 million ($784 million) of bonds and adding to a nearly $1 billion extension of its bank borrowing facilities.

Gilead: A most fortunate day for options traders

Robert Guy

The timing of apparently big news about the clinical success of Gilead Science's anti-viral treatment Remdesivir seems opportunistically well timed with Friday's expiry of call options on the biotech's stock.

The after-hours reports of the treatment being successfully used to treat COVID-19 patients in a Chicago hospital put a rocket under Wall Street futures and after hours of trading in Gilead shares.

Coincidentally, the news appears to have been released just ahead of Friday's expiry of call option. Gilead shares last traded in after-hours trades at $89.10, well above the strike price of many of the options set to expire tomorrow.

Reserve Bank tapers bond purchases as market returns to health

Sarah Turner

Confidence in the bond market roared back this week with investors snapping up the record $13 billion Australian government bond issue and vindicating the Reserve Bank's intervention which amounted to just $750 million on Friday, the smallest since quantitative easing began.

The Reserve Bank now owns $46.25 billion of Australian government and state and territory-issued debt since it started buying bonds on-market a month ago to target the three-year bond rate. It wants to see the market rate match the 0.25 per cent cash rate as closely as possible.

The AOFM's four and a half-year bond issue on Wednesday received more than double the bids than bonds available. The Morrison government's response to the COVID-19 pandemic could require up to $300 billion of bond issuance to fund the budget deficit, and a functional bond market is critical to facilitating that borrowing.

More than half of this week's bond deal was soaked up by the big four banks which are natural buyers of government debt for interest rate hedging and regulatory purposes.

Investors welcomed the presence of the Reserve Bank in the market. Grant Hassler, global head of fixed income at AMP Capital with about $50 billion of fixed income assets under management, called the RBA a "cornerstone buyer", and said its presence is helping to restore confidence for buyers.

Read the full story here.

Morgan Stanley cuts Platinum price target on funds outflow risk

Luke Housego

Morgan Stanley has cut its price target for Platinum Asset Management by 16.9 per cent to $2.70 citing the risk of fund outflows.

"We think FY20 is a challenging year for flows. 1H20 saw net outflows of $1.3 billion, or ~10 per cent of funds under management (FUM) and we think this will increase to about $2 billion or ~16 per cent of FUM in 2H20E," the investment bank's analysts wrote.

Morgan Stanley said the challenges are likely to persist into next financial year, when it estimates FUM will decline about another $3.3 billion or 12 per cent.

In addition to risk-off sentiment among retail clients, the analysts said soft performance for Platinum's key international fund will drive the deficit in fund flows.

"Performance in the key International Fund continues to be weak, which signals subdued outlook for flows and also limited opportunity for performance fees."

By the end of March Platinum's international fund had returned -8.1 per cent over the previous six months, which compared to -5.6 per cent for the benchmark, Morgan Stanley noted. Over 12 months the fund returned -3.7 per cent versus +3.0 per cent for the benchmark.

The analysts added that the asset manager's Asia fund had performed well, however, returning 6 per cent, over the last 6 months, or 5.5 per cent more than the benchmark, and topped the benchmark by 6.2 per cent over the year to March 31.


Private equity investors circle over Virgin

Phillip Coorey, Jemima Whyte

At least two private consortia are circling to take over Virgin Australia, reducing pressure on the federal government to bail out the ailing airline.

Virgin's management halted trade in its shares on Thursday last week. AAP

Sources inside government and the aviation industry confirmed to The Australian Financial Review that one consortium involves a private equity investor partnered with a "a strategic airline investor".

The other is believed to be an investment bank partnered with an Australian infrastructure investor.

While Qantas has the economic capacity to ride out the coronavirus-induced shutdown, Virgin has asked the government for a $1.4 billion loan to tide it over and threatened to tip the airline into voluntary administration if it does not receive help.

The government has refused, believing that will end up owning the airline that was already saddled with a $5 billion debt before the crisis struck. and that was seeking a loan worth more than twice its market capitalisation.

Read the full story here.

Whitehaven: Wilsons remains overweight despite tough quarter

William McInnes

Wilsons has held its overweight recommendation on Whitehaven Coal despite the coal producer delivering a tough production quarter.

The broker reduced its price target on the stock from $5.00 to $4.75, more than double the company's Thursday close price of $1.86.

The broker noted some positives from the tough quarter, with the Maules Creek mine showing strong quarter on quarter growth after restoring full employment.

"While it would be easy to be caught up in the two difficult quarters that have just been delivered, looking ahead production can lift as Maules and Narrabri normalise; costs continue to reduce; the business has significant growth plans in the pipeline; and valuation remains attractive," said analyst Daniel Porter.

Whitehaven's Maules Creek coal mine near Narrabri, NSW. Dean Sewell

He warned while thermal coal prices have held up well against most major commodities, it faced the prospect of further declines in consumption if the COVID-19 pandemic escalated.

The broker said the coal producer's price was too hard to ignore however and offered a great buying opportunity.

"Guiding to 20-21 million tonnes of production in FY20, Whitehaven is the largest independent coal producer in Australia, and a unique thermal (near) pure-play offering," said Mr Porter.

"Recent seasonal coal price falls can revert post Chinese New Year and we see recent share price pull backs as a compelling entry point for a stock with solid balance sheet with little debt, strong free cash generation, attractive dividend yield and significant growth options in the pipeline."

RBA tapers bond buying again

Jonathan Shapiro

The Reserve Bank has once again tapered its purchase of government bonds, announcing this morning it would only bid for $750 million of bonds via its daily purchase programme.

So far the Reserve Bank has purchased $46.25 billion of bonds, of which $37.75 billion are sovereign bonds, since it began its quantitative easing measures.

But it has gradually stepped down the size of its daily purchases. This week the Reserve Bank bought just $3.25 billion of government bonds, down from $5.5 billion last week and $10 billion the prior week.

Australia's central bank has been wading into the secondary market for federal and state government bonds to support market operation and credit spreads. AAP

Meanwhile the AOFM, which raised a record $13 billion via a November 2024 bond sale said it would issue $6 billion of two, three and ten bonds via three auctions next week.

On Friday it raised $1 billion via the auction of a 12-year bond at a weighted average yield of 0.9853 per cent.

Australia’s three-year bond currently trades at 0.28 per cent, slightly above the Reserve Bank’s 0.25 per cent target while the ten-year rate is at 0.88 per cent.

By comparison the US ten year rate is at 0.67 per cent

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2020/04/17 00:53