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ASX 200 (XJO) morning report – Afterpay’s NASDAQ effect

The Australian share market, including the S&P/ASX 200 (ASX: XJO) and All Ordinaries (ASX: XAO), is expected to drop when the market opens this morning. Here’s what investors need to know.

Afterpay continues to break records

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. This was driven by BHP Group Ltd (ASX: BHP), which rose 2.2%, and Rio Tinto Limited (ASX: RIO), up 3.3%.

Buy now, pay later market darling 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 space powers up

The superannuation platform space, which offers outsourced administration for financial advisers, remains one of the hottest sectors on the ASX after Praemium Ltd (ASX: PPS) announced it was acquiring Powerwrap Ltd (ASX: PWL) for around $55 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. Therefore, my preference is to limit exposure to the embattled sector.

Treasury Wine flags earnings hit

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%. Profits are expected to fall by 21% to $530 million.

Meanwhile, 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 its 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.

From 200+ ETFs in Australia, our top investment analyst has just identified his #1 ETF for 2021 and beyond.

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From 200+ ETFs in Australia, our top investment analyst has just identified his #1 ETF for 2021 and beyond.

Low fees? Check.

Long-term growth potential? Check.

Regular cash returns? Check!

This ETF makes investing in ETFs "Super-Easy".

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No gimmicks, no payment, no credit card info. Just click the link below and enter your email address. We'll send you the report right away.

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