Asian markets have followed the lead from Wall Street as we have seen strong gains in Australia and Japan. However, concerns over the removal of selling restrictions by China’s “National Team” on 8 January look to be weighing on Chinese markets, with Mainland and Hong Kong markets opening in the red.
Oil has given back a lot of its overnight gains in the Asian session with WTI losing 1.9% and very close to breaking through the US$37 level. Expect volatility around the notoriously-difficult-to-predict EIA inventories release in the US. With oil having seen such steady gains over the past week and a half, a gain in the US inventories number today is likely to incite a vicious downwards correction in the oil price.
China
Volumes are still very low throughout the region, but the focus is very much on developments in China over the coming days. The country’s NBS Manufacturing PMI is to be released on 1 January, with the Caixin Manufacturing PMI due for release on the 4 January. Both are expected to see increases, which would be consistent with the jump in recent industrial production and fixed-asset investment figures. Both are likely to stay below 50 in contractionary territory, but the focus will be on whether the New Orders and Output components can see gains and stay in expansionary territory.
The other big concern is the removal of the ban on sales from the “National Team’s” US$ 185 billion holdings of Chinese equities bought up as part of the stock market bailout. Some jitters were clear in the Chinese markets today, but one would hope that the Chinese authorities will be managing this liquidation in a steady and managed way.
Of course, judging by the roughshod execution of the bailout itself, one should not totally discount the possibility of a disorderly liquidation. But with senior financial industry personnel already feeling the hot breath of the Chinese Central Disciplinary Inspection Commission (CDIC) down their necks, the odds are that the “National Team” will be very moderate in their selling. Nonetheless, these concerns are likely to weigh on Chinese equities in the lead up.
It has been a strong day on the ASX as it opened well above the key barrier of 5275, where it has seen significant resistance over the past three months. Many in the market are looking hopefully at a close above 5411 by close of market tomorrow to end the year flat. This may be a bit of a stretch, with the index needing to add almost 100 points in tomorrow’s half session. However, a close above 5350 would be very respectable and see the index end the year at its highest level since 19 August, hopefully putting the sub-5000 performances well behind it.
Of course, while many have got the tiny violins out for the ASX this year due to its woeful nominal returns, the total return on the index is actually +4.6% when one factors in dividend payouts - still better than putting your money in a term deposit for the year.
Even the “devastating” year for the banks looks far more reasonable in total return terms (with dividends reinvested). Westpac Banking Corporation (AX:WBC) has managed to return 10%, with Commonwealth Bank Of Australia. (AX:CBA) following close behind with 7.5%. National Australia Bank Ltd (AX:NAB) is looking to finish the year flat in total return terms and ANZ Banking Group (AX:ANZ) is still going to finish down 5.2%. However, when you factor in reinvested dividends into the Macquarie Group Ltd (AX:MQG), the stock has returned 49%. And Macquarie is still looking pretty compelling into 2016, with price targets above A$100 floating around. Given these returns the strong buying we have seen in the banks over the past week and a half make total sense. The Big Four had another great day with yield hunting investors very keen to pick up the stocks.
What’s most surprising when you look at the sectoral total return is the major outperformance of the utilities sector this year. The utilities sector has returned 23.4% in total return terms – a very impressive performance. Consumer discretionary follows closely behind with +19%, and healthcare and industrial both returned roughly 15.8%. In short, when you have a winner on your hands always take part in the dividend reinvestment program.
