James Gerrish - Morning Note

 

13/08/10   - 8.59am   -  by James Gerrish 

Overseas markets drifted lower again overnight on the back of another underwhelming piece of employment data out of the US. The theme of selling risk continued with the Bond market an obvious place to see this phenomenon play out. Over the last six weeks there has been high demand for lower grade, high yielding bonds but in the last couple of days, demand has faltered - forcing yields higher. This fits with a pullback in equity markets and commodities while demand for the US dollar & Gold (safe havens) has increased. 

On the market, the DOW JONES lost -58 points or 0.57% to close at 10319. In the UK, the FTSE 100 added +20 points or 0.4% to 5266. Locally, SPI FUTURES were down -11 points at 4346. 

Its quite interesting to see the level of bearish literature that starts filtering out as soon as weakness comes into the market. I do agree with many of the technical views that are making the rounds - The market has made a lower high structure which is bearish. A shorter term double top is obvious in the S&P 500, and if you're into Elliot Wave, we got the possibility of a three wave corrective move playing out. 

I'm certainly conscious of these structures in the market and I'm a big believer in letting price action be the overall determinant of investment decisions. Price action at the moment is suggesting to increase cash or protect portfolio's with options and this is the strategy that we have employed in the model portfolios. 

In saying this, we remain confident in the theme we've been discussing for the six weeks or so - that risk assets that are leveraged to emerging market growth will outperform over the medium term and this is where the majority of money should be allocated.

Yesterday we saw some mixed results from Australian companies. A highlight was Coca-Cola Amatil (CCL) which reported ahead of expectations and gave an upbeat outlook (high single digit growth) for next year. One of the interesting aspects of the result was the significant growth (+20%) in Indonesia. At the moment its a very small part of their business but it will expand quickly -  but more importantly its another example of why investing for Asian (emerging markets) growth is important. 

Contrast this with James Hardie's result which came in slightly below expectations. JB Were writes this about the result..."Geographically, the result was supported by a strong performance in the Asia Pacific region with the US and Europe fibre cement division performing below expectations..."