ASX 200 opens higher – TCL & SEK shares in focus

The ASX 200 and All Ordinaries indices opened higher with Seek Limited (ASX: SEK) and Transurban Ltd (ASX: TCL) in focus.

US markets jump, gold forges higher

Another day, another global technology rally sending markets higher. The S&P500 and Dow Jones indices both improved 0.6% on Monday but it was the NASDAQ driving market returns, improving 1.1% as both Adobe Inc. (NASDAQ: ADBE) and Amazon Inc. (NASDAQ: AMZN) hit new all-time highs.

Despite overnight moves, market breadth is increasing once again, meaning more companies are now driving the market higher than before. The ASX200 climbed a similar ‘wall of worry’, offsetting initial gains to finish up 1.9 points — less than 0.1%. It will open higher on Tuesday morning.

Just 3 of the 11 sectors improved on Monday with materials up 1.7% as the gold price tested a long-term resistance level and an 8-year high of USD$1.750. Newcrest Mining shares rose 3.7% as a result.

With the AUD now trading around US$0.68c and heightened tensions with China, I’d suggest the risk is now to the downside and a currency hedge may be more appropriate.

Victoria back in lockdown, travel stocks collapse

The announcement that Victorian restrictions would continue until at least mid-July is likely to send an ever-increasing number of businesses into administration. Travel stocks reacted poorly to the news.

Webjet fell 5% on the news as did Qantas, whilst Tuesday should see more news on the sale and recapitalization of Virgin Airline Holdings.

The building sector received a vote of confidence with James Hardie adding 7.3% after lifting its guidance for the first half. Boral shared in the spoils, increasing 3%. In my view, BLD offers a unique opportunity to benefit from both the economic recovery and fiscal stimulus already announced, with the resignation of CEO Mike Kane potentially opening the prospect of asset sales and acquisitions in the second half of 2020.

Challenger Group unexpectedly launched a $300 million capital raising, with just $30 million allocated to retail investors as they seek to shore up their regulated capital buffer.

Moving away from China

With the global technology sector moving ever higher due to businesses ‘pivoting’ to online services or generally seeking efficiency, the Australian economy seems to need a pivot of its own.

Recent rhetoric with China regarding everything from iron ore and education to travel and beef suggests our reliance on the fastest-growing economy is in need of review. But where to from here? Only time will tell whether we are able to restart our own manufacturing capabilities or become global leaders in other technology.

One such leader has been Seek which has rallied 30% since it’s March lows. Management announced a potential $230 million write-down of their Mexican and Brazilian businesses in light of weaker sales revenue, whilst June advertising was still down some 40-50% on 2019. Despite this headwind, the share price ended in positive territory for the day.

Finally, toll road operator Transurban who are in the midst of a Supreme Court case over their Westgate Tunnel cut their dividend by close to 50% to 16 cents even as tolls began reapplying and traffic volumes are on the improve.

Here are today’s actionable insights:

This report 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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