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S&P/ASX 200 morning report – my 3 lessons for the week

The S&P/ASX 200 (ASX: XJO) is expected to start the week on a negative note as ASX futures point to a weak open. Here’s your daily ASX morning report.

ASX 200 recap

The ASX 200 finished 0.9% lower on Friday and down 0.6% for the week; the second straight week of losses. Selling was broad-based but particularly coming from materials, down 1.8%, as Australia upped the trade war ante following PM Scott Morrison’s crackdown on deals with China.

The Aussie dollar rallied strongly following the US Federal Reserve’s about-face on inflation targeting, hitting 73 cents and placing pressure on an already struggling Australian economy.

ASX small-cap sports gambling company Pointsbet Holdings Ltd (ASX: PBH) jumped 88% in a single session after announcing a partnership with NBC Sports, the leader in the US with some 184 million regular viewers; management announced a $300 million capital raising at a discount to the new share price.

Elsewhere, avocado, berry and citrus producer Costa Group Holdings Ltd (ASX: CGC) gained 11% after announcing success in its turnaround following a difficult year of droughts and poor growing conditions. Management flagged a strong improvement for the remainder of 2020.

Boral doing the hard work

“I’m not in the business of just throwing more money at our problems” – New Boral Limited (ASX: BLD) CEO Zlatko Todorcevski delivered this refreshing statement allaying the fears of shareholders that a discounted capital raising may be around the corner.

The business managed to surpass expectations, which were lowered following a pre-announced $1.3 billion impairment to its US business. Excluding this impairment, Boral reported a full-year net profit of $181 million, substantially better than expected.

The new board elected not to pay a dividend for the second half, following a 30% fall in earnings to $710 million. The company remains well-positioned for an expected boom in infrastructure spending with some 25% of income sourced from the sector.

Paradigm change for US policy

President Trump appears to be getting his final wish in the lead up to the election; a weakening of the US dollar to support the economy’s home-grown manufacturing and export base.

The catalyst was an about-face from the US Federal Reserve indicating they would be seeking full employment and allowing inflation to track higher in future years.

The result was a 0.7% rally in the S&P 500 and 0.6% in the Nasdaq, with both finishing the week over 3% higher. Both Apple Inc. (NASDAQ: AAPL) and Tesla Inc. (NASDAQ: TSLA) continue to push all-time highs ahead of their impending stock splits.

My three lessons for the week

1. Quality of management is as important as ever

AMP’s cultural issues were exposed in extensive detail last week, resulting in long-needed changes at board level; the question is whether the new CEO is up to the task of meeting community expectations. On the other hand, the decision from Boral’s CEO not to raise capital and take on the task of cleaning up their balance sheet was refreshing.

2. Chinese policy is a growing risk for Australia

Australia’s inadvertent instigation of a trade war with China does not bode well for our economy, despite being in our long-term interests. The week saw a ramping up of rhetoric from the Federal Government and our most important trading partner. Investors should be looking closely at how exposed their portfolio of ASX companies may be.

3. The Federal Reserve policy change is underappreciated

The decision by the Federal Reserve to loosen inflation targeting at the preference of full employment is a long-needed paradigm change that will have far-reaching implications for the global economy. This should support a strong US economic recovery.

Final call

Back home on the ASX, it’s the last day of August reporting season and the ASX buy now, pay later sector will be front and centre – Sezzle Inc (ASX: SZL), Splitit Ltd (ASX: SPT) and Openpay Group Ltd (ASX: OPY) are all set to report.

If you’re interested in BNPL shares, check out this video I recorded with investment analyst Owen Raszkiewicz last week:

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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Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

So, whether you have $2,000 or $50,000, our brand new analyst report could help transform your watchlist. Right now, you can get the full analyst report emailed to you for FREE by CLICKING HERE NOW.

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

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