Don’t Bet Against Australian Stocks
“Dry July” can sure be a dull one if you take up the option not to drink for the month.
It hasn’t been much more fun for Aussie index investors this month either.
Apparently the S&P ASX/200 put in its worst July in six years. And this with US stocks going into all time new highs!
Actually, I don’t think this is such a bad thing. It gives us more time to accumulate stocks before the market breaks higher.
And I think the Aussie market is absolutely odds on to do just that. The market is certainly getting a lift from the mining sector.
BHP hit a five month high yesterday.
That’s a trend that could continue for some time, if slowly.
The big stocks are always going to move at a steadier pace than the small cap sector.
That’s the nature of the beast.
But this earnings season might see some really big moves up at both ends of the market.
In fact, I think most of the surprises will be how much money Aussie stocks have made relative to all the doom and gloom we hear.
We’re going to find out either way, that’s for sure.
But certain stocks are already heating up…
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At one point yesterday two small caps stocks I’ve been keeping an eye on were up 20% during the day.
Admittedly, they finished the day lower than their intraday high. But even 10% up can be a buzz for one day’s ‘work’ if you got in right.
One of those moves happened to be a cobalt stock. You might remember I said back in early July that stocks associated with battery minerals, like cobalt, were really worth watching closely.
Here’s another example. One cobalt stock on the ASX happens to be called Ardea Resources Ltd [ASX: ARL]. It’s up about 50% from around that July day to yesterday’s close. About a month in all.
That just shows you how these smaller stocks can really move in short spaces of time.
And yet I bet you’ve never even heard of it.
But it gives you an idea of the kind of opportunity I hope to find over and over again in my brand new service, Small Cap Alpha (please note: ARL is NOT a recommendation, — it’s an example only).
You should have got my first presentation on my inaugural advisory letter, Small Cap Alpha, earlier today (if you didn’t, check it out here).
It’s great to finally begin. I’ve locked on to what I think are some cracking opportunities.
And this is just the start…
It’s just so exciting for Australia right now —
don’t bet against it
I can tell you, things are looking bullish for Australia.
Did you see the last credit statistics for June from the RBA?
Annual credit growth is now up to 5.4%. Both business and housing loans are growing.
This is not a trend I would bet against. While it continues, stocks should rise as this money filters out into the economy.
And let’s not forget iron ore. Right now it’s trading around a four month high in Chinese futures after Chinese construction data was released. That’s around US$74 per tonne.
You might not know this but Australian Treasurer Scott Morrison’s forecast in his budget for iron ore was US$55 per tonne.
Every US$1 dollar rise in the average iron ore price adds $250 million to federal revenues, according to HSBC chief economist Paul Bloxham.
We’re talking billions in extra revenue if this iron ore rally continues.
If the government spends this windfall into the economy, you would have to assume that’s good for stocks over time.
If Australia’s federal politicians don’t take the easy option and buy votes with it, they could pay down the government debt.
That would make the big banks look better to the international rating agencies, who’ve been watching them closely.
Any deterioration in the federal government budget flows bank to the banks in higher funding costs. That’s because the government is presumed to backstop the banks from failing.
A strong iron ore price could take some of the pressure off the banks here.
That would be good for the Australian market index, because the banks make up such a large percentage of it.
That’s a bit of speculation on my part. Take it with grain of salt.
But I just see many reasons to be excited by the second half of 2017.
I have said it more than once now, but the time to be positioning for a strong uplift in the market is now.
Finally, at long last, I can suggest you go here to begin to learn how.
Editor, The Daily Reckoning Australia