The S&P/ASX 200 (INDEXASX: XJO) is expected to take a backwards step at the open this morning according to data from the Sydney Futures Exchange. Here’s what you need to know.
Afterpay: the NASDAQ effect
It was another volatile day for the ASX 200, with the market finishing 0.6% higher, as a weak lead from the US impacted on confidence. The only two detractors were the ASX property and staples sector, with materials and mining once again a highlight, driven by BHP Group Ltd (ASX: BHP), +2.2%, and Rio Tinto Limited (ASX: RIO), +3.3%.
Afterpay Ltd (ASX: APT) continues to break records, increasing another 11.4% to $73; it seems the company has become the Australian version of the Nasdaq 100, attracting every investor seeking growth despite its sky-high valuation. I’m calling it the NASDAQ effect, as whilst I believe the company has some value, it’s simply moved beyond any realm of understanding.
Speaking of the NASDAQ effect, it finished another 0.5% higher whilst the S&P 500 and FTSE 100 both fell 0.6% and 1.7% respectively. Wells Fargo (NYSE: WFC) was a major detractor, down 2.2% after announcing wide-ranging staff cuts to deal with the aftermath of COVID-19.
Independent platform wars
The superannuation platform space, which offers outsourced administration for financial advisers, remains one of the hottest sectors in the market after Praemium Ltd (ASX: PPS) announced it was acquiring Powerwrap Ltd (ASX: PWL) for around $55.4 million. Powerwrap increased 65.7% and Praemium 23%, in a clear sign that investors expect to see real synergies extracted from this deal. The combined company will have around $28 billion in assets under administration, but a market capitalisation of just $230 million.
As a comparison, the leader in the independent platform space, Netwealth Ltd (ASX: NWL) has around $32 billion of funds under administration but is valued at over $2 billion. In my view, there is serious value in the smaller players for those with an appetite for risk.
On a more sombre note, Australian home loan applications disappointed, falling 10.2% from April with investment lending down a further 15.6%. When combined with the extension of loan repayment holidays, the signs are not good for property or bank profits in 2021 and beyond; my preference is to limit exposure to the embattled sector.
Treasury Wine sours
As we move closer to the most anticipated earnings season in over a decade, Treasury Wine Estates Ltd (ASX: TWE) offered a precursor into what investors should be expecting. The company announced weaker sales in all major markets, but particular the US, down 37%, Asia, down 14% and Australia, down 16%, with profits expected to fall 21% to $530 million.
On the other hand, SAP SE (ETR: SAP) which offers enterprise software and systems, announced a stronger than expected recovery in Asia and confirmed its full-year outlook, adding 4.6%, but the Eurostox 50 finished 0.8% lower. German trade appears to be rebounding, with exports improving 9% but imports remaining subdued, growing just 3.5%.
Recce Pharmaceuticals Ltd (ASX: RCE) was one of the biggest domestic winners, the $100 million company spiking 54.4% after the CSIRO selected their compounds for upcoming COVID-19 treatment tests.
In a sign of the froth building in Chinese markets, a new IT security company, QuantumCTek Co, turned into a ten-bagger immediately upon listing on the speculative exchange, up 924% on day one of trading.
Drew is one of the founders of Wattle Partners. He is an experienced financial and investment adviser with expertise in self-managed superannuation funds, superannuation strategies, investment analysis and portfolio construction. Drew is a Partner at Wattle Partners.
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