S&P/ASX 200 to rise – Rio Tinto & ASX bank shares in focus

The S&P/ASX 200 (INDEXASX: XJO) is expected to start the day in positive fashion as ASX futures point to a strong opening on Thursday. Here’s what you need to know.

ASX banks off the leash

It was another negative day for the ASX 200 on Wednesday, falling 0.2% as a confluence of economic impacts dented confidence. Queensland’s decision to once again close its borders to ‘Greater Sydney’ meant early gains were quickly reversed.

Investors didn’t have to wait long to learn that the Consumer Price Index had fallen 1.9% for the June quarter, however, given this included a 95% fall in childcare costs and the 60-70% collapse in the oil price, I wouldn’t be concerned about deflation just yet.

The biggest news was by far APRA’s announcement that they would support Australian banks returning to the payment of dividends, albeit with a cap of 50% of earnings. The news was clearly music to the ears of income seekers, with ANZ Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) up 2.1% and 1.6%.

Looking beyond dividends

Despite the positive news for ANZ and NAB, I continue to question the benefit of investing in a business solely for the income and dividends it provides. I would suggest that most companies should really have been targeting a dividend payout 50% of their earnings before COVID-19 hit, as this is the only way a business has a chance of fighting the constant disruption from more nimble technology-driven competitors.

In other news, Commonwealth Bank of Australia Ltd (ASX: CBA) announced a $12 million investment in the new Square Peg Venture Capital fund as it seeks to find the next great disrupter, a small investment for a company with a market cap of $130 billion.

On the positive side, Rio Tinto Ltd (ASX: RIO) announced a 3% increase in its interim dividend, despite revealing a 20% fall in net profit to $3.3 billion. The iron ore division continues to benefit from the GFC-like recovery in Chinese steel production, with earnings increasing 2% to $7.7 billion, hitting 70% of the group total.

Winners & losers

The US market moved higher once again with the S&P 500 adding 1.2%, offering a positive lead to the Australian sharemarket this morning. The tech-driven Nasdaq continued to outperform, up 1.4%, even as the likes of Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL) and Facebook (NASDAQ: FB) faced a grilling from Congress on anti-competitive behaviour.

Shopify Inc. (NYSE: SHOP), which offers pre-built e-commerce websites for smaller companies, continued its rally after announcing a doubling in revenue in the quarter, up 97% to US$714.3 million. The Shopify share price is up 148% for the year. The company has been a core exposure of a number of mid-cap focused managed funds that form a core of my preferred portfolio.

Back home on the ASX, asset manager Janus Henderson Group (ASX: JHG) experienced another US$8.2 billion in outflows, despite its assets under management increasing 14% to US$336.7 billion. The party seems to be over for underperforming value managers, as investors seek lower cost or faster-growing options.

Today we hear from shopping centre owner Unibail-Rodamco-Westfield (ASX: URW), expecting some bad news as Australian lockdowns are likely to be extended. Friday is looking to be a huge day on markets with US GDP results and earnings reports from each of the major tech names.

This article was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.

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Drew Meredith is the author of this post. He may maintain positions in the securities mentioned.

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