The ASX has been setting a decidedly downward trend this month, moving below its 200-day moving average with a 4.89% drop.
While the ASX200 rallied briefly on Wednesday, it wasn’t enough to build upward momentum and the index fell 0.66% for the week overall.
The rest of the world had mixed performances this week.
The S&P500 dipped 0.29%, but the Nasdaq managed to just barely hang onto its upward momentum, rising 0.60% this week and 1.70% for the month.
The FTSE100 managed greater gains, up 1.21%, while in our part of the world, the Nikkei 225 inched up 0.12% and the Hang Seng managed a solid 2.24% gain, now down only 9.07% for the last year after an abysmal performance at the end of 2022.
The ASX200’s sectors were predictably flat this week, although there were a few diamonds among the dross: Communication Services lifted 1.39% over the last five days, while Consumer Discretionary gained 1.05% and Energy 0.73%.
On the other hand, Real Estate took a hit, dropping 3.18%, and Financials also suffered, shedding 1.98%.
Commodities were a different story. Only nickel fell this week, dropping 3.32%.
Pretty much everything else gained, with tin (+7.43%), silver (+6.48%), and copper (+5.85%) the highest performers and palladium dead flat.
How will investors react to Bank of England interest rate rise?
Investors will look beyond today’s UK interest rate hikes and begin to top-up their investment portfolios with sectors that are able to maintain margin, says leading global financial advisory organisation deVere Group CEO Nigel Green.
The Bank of England (BOE) opted to lift interest rates to a 15-year high of 4.25% yesterday, sparking speculation from global analysts.
It’s the 11th consecutive interest rate increase and brings UK interest rates to their highest since October 2008, almost at the start of the financial crisis.
“There are two key takeaways from the Bank of England’s decision,” Green explained.
“First, the Bank has already monumentally failed to control inflation so far, causing misery for households and businesses across the country.
“They failed to act quickly early on to cool inflation. They resisted raising interest rates from near-zero levels for most, even as prices began shooting up due to pandemic-related supply chain snarls, Covid outbreaks and a persistent labour shortage, among other issues.
“The UK is still paying for these mistakes.
“Second, despite the Bank predicting inflation to fall even more sharply despite yesterday’s shock number, it’s clear that it will remain an issue for some time to come.
“In this environment, some companies are going to find it difficult to maintain margin and, as such, investors need to be looking at sectors that can maintain margin, despite sticky inflation.”
Previously, Green has suggested that these sectors include healthcare, luxury goods, energy and agriculture.
“Healthcare is a robust sector as people will always need to stay healthy – this has come into focus more than ever since the pandemic,” he said.
“Also, despite wider market volatility, there’s strong earnings potential due to ageing populations and other demographic changes. Plus, healthcare is becoming increasingly tech-driven, which offers fresh opportunities.
“Luxury goods can maintain margin due to the inherent aspirational 'elite and exclusive' aspect of the sector.
“We'll look at energy because there's a shortage of energy in the world right now.
“Agriculture is another one as populations in emerging markets around the world are eating more meat. As they eat more meat, there needs to be more grain produced.”
“In this and all environments, there remain two clear ways for investors to maximise returns relative to risk: the time-honoured practice of portfolio diversification,” Green concludes.
“A considered mix of asset classes, sectors, regions and currencies offer protection from shocks, and to remain fully and wisely invested.”
AT1 bond market may be permanently damaged
While the banking stability furore appears to have died down, the fall out is still being felt by those directly exposed to the failing banks.
Credit Suisse (SIX:CSGN) stocks and the Contingent Convertible (CoCo) bond market are no exception, as KNG Securities head of secured notes and financials trading Paul Summer explains.
“After an initial selloff, the AT1 bond market has recovered somewhat from the shock of the Credit Suisse writedown,” Summer said.
“The affected Credit Suisse AT1 bonds are now trading at around 5% of notional value, as some investors see hope of a legal challenge.
“The Credit Suisse Tier 2 bond 6.5% 08/08/23, which was not written down even though it included bail-in language, dropped to 60% but is now trading above 90%.
“Investors in other AT1 bonds were comforted by comments from the EU and UK authorities that they would expect common equity instruments to absorb losses before AT1 is written down.
“However, in our view, this will permanently affect the AT1 market, with investors having to pay much more attention to the terms and conditions of future new issues, and consequently demanding a higher interest premium.”
Small cap wins for the week
MGC Pharmaceuticals soars 35.7%
MGC Pharmaceuticals Ltd (LSE:MXC, OTC:MGCLF, ASX:MXC) shares have surged 35.7% this week, after it successfully listed its ArtemiC™ COVID-19 treatment as an over-the-counter drug in the US.
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Akora Resources jumps 35.7%
Akora Resources Ltd (ASX:AKO) shares lifted on news the company had boosted dry shipping ore (DSO) potential at its Bekisopa Iron Ore Project in Madagascar.
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Surefire Resources leaps 27.7%
Surefire Resources NL (ASX:SRN) jumped 27.7% this week, after the company announced it would investigate the potential for high purity alumina at its Victory Bore Vanadium Project.
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Magnetite Mines lifts 10.9%
Magnetite Mines Ltd (ASX:MGT) shares were up 10.9% this week, on news of the company’s "outstanding" Razorback optimisation study and 340% boost in ore reserve.
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Galileo Mining up 10.7%
Galileo Mining Ltd (ASX:GAL) gained 10.7% to its share price this week, buoyed by hitting 72 metres of mineralisation in a new sulphide zone at the Norseman Project’s Callisto palladium-nickel prospect.
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