ASX rises for fourth day

n shares rose for a fourth straight session on Monday to a fresh decade-high level on gains in healthcare and financials stocks.
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The S&P/ASX 200 Index added 8 points or 0.1 per cent to close at 6130.4 points.

Leading the index was Vocus Group which rose 4 per cent to $3.26 after the telco appointed fund manager John Ho to its board. Mr Ho’s Janchor Partners owns a 17.9 per cent interest in Vocus, including the benefit of derivatives equivalent to a 8.7 per cent stake.

Suncorp dipped 1.2 per cent to $13.72 after warning its first-half results will take a hit of up to $170 million, following a flood of insurance claims relating to Melbourne’s hailstorm in December.

AJ Lucas Group fell 18 per cent to 35?? following Friday’s confirmation that a private UK-based fund will take a stake in AJ Lucas as part of a $22 million placement, while the services and shale gas company seeks to raise further funds to cut debt and finance drilling in north-west England.

ResApp Health rose 7 per cent to 9.1?? on enrolling its first patient in a US study to evaluate its smartphone app efficacy in the diagnosis of childhood respiratory diseases in cough sounds.

Automotive Holdings Group agreed to acquire two franchised automotive dealerships in southern Auckland. The stock rose 0.3 per cent to $3.70.

Pacific Star Network, owner of SEN radio, emerged from a trading halt with a deal to merge with Crocmedia, a sports content business. Pacific Star will also raise $10 million selling new shares at 25?? apiece upon the merger completing. The shares were flat at 32??.

Asian equities were higher after the S&P 500 closed at a record high on Friday.

Oil prices firmed on Monday on the back of a slight decline in the number of US rigs drilling for new production, with crude holding just below near three-year highs reached last week. US West Texas Intermediate crude futures were at $US61.62 a barrel not far off the May 2015 high matched last week.

Gold prices held firm below a three-and-a-half month peak hit last week, at $US1,322.50 an ounce.

Chinese steel futures extended losses as demand in the world’s top producer falters amid heavy snow and frigid weather. The most active rebar on the Shanghai Futures Exchange dipped 0.7 percent to 3,764 yuan ($US580.24) a tonne. What moved the market

Beyond P/Es

Most references to valuation cite conventional measures such as the price-to-earnings ratio. The ASX-listed Absolute Equity Performance Fund suggests an alternative is to look at the size of the stock market relative to the size of the economy. For the US, the Wilshire 5000 Index currently has a market cap of $US24 trillion, and nominal US GDP is currently about $US19 trillion. By that logic, the current ratio is 130 per cent ($US24 trillion/$US19 trillion). This appears to sit right at the upper end, versus as low as 40 per cent during the stagflationary period of the late 1970s, to as high as 140 per cent in the lead up to the late 1990s dotcom bubble.

Stretched

It’s too soon to write off the US dollar’s chances in 2018, argues Macquarie’s sales and trading team. The US dollar was “surprisingly resilient” to the miss in US non-farm payrolls on Friday, “suggesting the market is already short”. It also appears the market has further extended speculative longs in euro-dollar and dollar-yen. Consensus suggests last year’s weakening US dollar trend extends, “but consensus trades have a nasty habit of blowing up in January, and we think that pattern could be seen again this year,” they warn. The US recovery is not fully mature, three Fed hikes are in store but only two are priced in, and US fiscal stimulus is arriving.

Ore floor

Iron ore prices will average $US51.50 a tonne this year, down 20 per cent from 2017, because of rising global supply and moderating demand from top importer China as its steel sector shrinks.The forecast price decline – from an average of $US64.30 a tonne in 2017 – continues into 2019, when the steelmaking raw material will average only $US49 a tonne, according to the Department of Industry, Innovation and Science. Rio Tinto and BHP, along with Fortescue Metals Group aim to add about 170 million tonnes of new capacity over the next several years. “The iron ore price is expected to experience some ongoing volatility in early 2018, as the market responds to uncertainty regarding the impact of winter production restrictions on iron ore demand,” the department said.

Scythed

Chicago wheat slid on Monday, on track for its biggest three-day fall since mid-December, although worry over lack of protective snow cover in the United States and Russia limited decline. The Chicago Board of Trade’s most-active wheat contract gave up 0.3 per cent at $4.29 a bushel after ending Friday down 0.8 per cent. Wheat prices have been supported against further drops by fears that frigid weather might damage crops across key US producing regions, which are already struggling with persistent dry weather. With stiff competition from last year’s record Russian wheat crop, European Union’s soft wheat exports in the 2017-18 season reached 10.6 million tonnes by Jan 2, down 20 per cent from the 13.3 million tonnes exported by the same time in the previous season.

Stock watch: Cochlear

Morgan Stanley finds that Cochlear has the better market opportunity, growth prospects, and return on equity when compared to its other high-quality peer, CSL, with a long-term view. The broker upgraded its price targets for both stocks, raising Cochlear to $164 a share from $146. Morgan Stanley estimates the cochlear implant market to be around 3 per cent penetrated in the developed world; sees Cochlear’s cloud-based and direct-to-consumer marketing strategies driving sustained core implant unit growth rate of up to 10 per cent through to 2024-25; and benefits from a growing installed base to harvest reliable ongoing service and upgrade revenue growth. The broker’s long-term earnings per share compound annual growth rate is estimated at around 15 per cent and the company should maintain a return on equity of around 50 per cent. Its recommendation of “equal-weight” is based on the stock’s 2017-18 price-earnings multiple. Cochlear shares are trading at $175.57.

With Reuters

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