Mining companies disconnected from underlying prices

July 11, 2024 Leave a comment

The Gold price in AUD has risen yet the equity price in gold mining companies are lagging and subdued.

Here is a study of the stock price of ASX listed Evolution Mining and the Gold price in AUD.

Mining is difficult…..when publicly listed, you are forced to produce, irrespective of the costs.

And it matters how an investor expresses their view relating to a particular theme or idea.

July 11, 2024

by Rob Zdravevski

rob@karriasset.com.au

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some scenarios about Lend Lease

February 23, 2024 Leave a comment

Whilst I acquaint myself with the numbers and the fundamental business of ‘beleaguered’ Australian property development company, Lend Lease (LLC.ASX)…….the decline in the stock price has been merciless.

Lend Lease’s current stock price is A$6.04

18 months prior, there were some other anecdotal concerns about the company which crossed my desk.

But the recent declining ‘wave’ (since August 2023) where the stock price has fallen 30% has seen 420 million shares traded, which equals 62% of its free floating shares on issue.

Subjectively, when 60%+ of the company’s shares have turned over, within a certain period, I start think that the last ‘hold-out’ has folded and thrown in their hand.

For some initial sport, I think this stock may trade down to the $5.20 – $5.70 range.

Alternatively, I think a ‘consortia’ will appear with a bid to buy the whole business at $5.60 per share, making it a ‘take-under’ from today’s price.

Not all acquisitions occur at a premium price.

But perhaps I may conclude that it’s better to own the debt rather than the equity….should I come to any decision at all.

February 23, 2024

by Rob Zdravevski

rob@karriasset.com.au

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The de-equitisation of the ASX

November 6, 2023 Leave a comment

The Australian Stock Exchange (ASX) has 2300 entities listed on it,

of which, 220 are ETF’s (Exchange Traded Funds) and a further 80 are LIC’s (Listed Investment Companies).

If we subtract those, we are back now to 2,000 ‘companies’.

Less the 90 companies which are are suspended,

takes us down to 1,910.

Dissecting those remaining 1,910 companies……

767 of them have market capitalisations below $25 million,

a further 256 are trading with a market cap between $25-$50 million,

and another 209 have market caps between $50m – $100m.

That’s a total of 1,230 companies (of the 1,910 left ‘trading’) having market caps of $100 million or less

And 170 companies have market caps between $100m and $200m.

Of that group, we have a total of 1,300 companies with a market cap below $200m.

Arguably, 68% of the companies listed on the ASX hardly matter, and less so to global investors.

Perhaps 40% of the total listed companies, shouldn’t be listed, at all.

Of the 600 companies remaining, 200 companies are trading with market caps between $200 and $686 million.

The 400th largest company has a market cap of $686 million.

The Australian equity market is shrinking and thus “de-equitising”.

The silver lining is…that being a public company allows investors to sift through a company’s particulars freely.

The de-equitisation of the ASX is a positive for the shareholders as feasible investment opportunities are becoming scarce.

It’s not good for the Australian Stock Exchange per se.

Scarcity and tension is also increasing as pension (superannuation) and private equity funds are seeking to deploy more of their ‘idle’ capital.

An added ’squeeze’ is that Australian companies are ‘cheap’ on a U.S. Dollar basis.

With a currency trading at an USD/AUD exchange rate of 0.6400…..buying an Australian business which has a market cap of A$400 million, doesn’t seem to much when you consider the price tag to an American buyer is only US$256 million.

The other ‘bullish’ reference I’ll leave readers with is that in 2003, there were nearly 8,000 securities listed on U.S. equity exchanges.

Today, it’s close to 5,000 securities.

That is the picture of de-equitisation and scarcity.

November 6, 2023

by Rob Zdravevski

rob@karriasset.com.au

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ASX 200 Standard Deviations Extremes

October 26, 2023 Leave a comment

The market swoon in the ASX 200 should be nearing its conclusion.

The ASX 200 is a whisker from trading 2.5 standard deviations below its weekly mean.

The study below shows the various moments it has done so over the past 10 years.

Probability suggests allocating money at such moments but you’ll be disappointed if you’re seeking quick results.

October 26, 2023

by Rob Zdravevski

rob@karriasset.com.au

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Chalice completes a reversion to the mean

August 31, 2023 Leave a comment

There is a preface within my latest newsletter ‘Warming To Commodities’, that I have been a bearish on commodities and their related stocks for the past 2 years.

2 years ago, I wrote this note about Australian mining company, Chalice Mining (CHN:ASX) and it was an example of my bearish views.

Following that near-term August 2021 timeframe, the stock price danced between both ends of its ‘extreme pendulum’.

This week, Chalice Mining’s stock price finally mean reverted back to (and below) its 200 week moving average. This satisfies my criteria of an ‘oversold’ extreme where it’s also oversold on a weekly basis and trading 2.5 standard deviations below its weekly mean.

Whilst the downward price trend is strong suggesting further weakness (and there are gaps way below), the lesson is more about observing where the upper end of the ‘extremes’ range was and how the ‘mean’ rolls and morphs over time.

For example, back in August 2021, the 200 week moving average for Chalice sat at $1.49……now that mean is at $4.82.

Now, it’ll be important to watch if the stock price holds $3.37, which was its June 2022 trough.

Interestingly, nearly 15% of the company’s shares outstanding have been traded in the past 4 weeks of weakness.

Providing that ‘nothing is broken’, this is also an example where ‘weaker hands’ are throwing their stock away, into the hands of ‘stronger hands’.

August 31, 2023

by Rob Zdravevski

rob@karriasset.com.au

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September 28, 2022 Leave a comment

The cratering in stock indices is afoot.

HSI and HSCEI today are doing so.

Opening gains in stocks are being given up as the past 2 days of trading is occurring.

Pessimism is growing amongst a host sentiment and survey indicators.

Really long term mean reversions are occurring or nearing.

Smaller investors seem jittery.

The AUD/USD is plunging. A visit to 0.6320 would be a 3 standard deviation event.

On September 9th, 2022, I wrote;

“I think prices will jump a little, drag in a few more people and then spit them out again in the coming week or three followed up with another swoon.”

Not trusting some of the signals

And here we are…..

For a bit of sport, I think S&P 500 has a terrible day during Wednesday’s session and the Aussie market will give up its early gains then sink further on Thursday before traders swoop in and start buying 2 hours before Thursday close not before they dump the same stock into Friday’s close before their long weekend on the Australian east coast.

That’s the sort of market we have currently.

September 28, 2022

by Rob Zdravevski

rob@karriasset.com.au

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ASX 200 Registers Rare Monthly Overbought Reading

August 15, 2021 Leave a comment

This month, the ASX 200 has touched a “rare” Monthly (not weekly, but monthly) Overbought reading.

For the lack of a better word, I’m calling it rare as the chart below covers 35 years and this level has only been (generally) visited 5 times prior.

Such a moment is worth noting but it’s not an absolute ‘sell’ signal.

My work suggests a greater probability for higher prices or a ‘melt-up’ before we see a peak.

For now the upward trend remains intact and I’ll look for the index to touch 2.5 standard deviations (the upper end of the bands illustrated) above its mean before searching for exhaustion of the current bull market.

Keep in mind that prices can stay ‘overbought’ longer than expected and the constituents (and their weightings) have changed over the course of this charts history.

August 15, 2021

by Rob Zdravevski

rob@karriasset.com.au

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Market Quips & Synopsis – Sept 18, 2020

September 18, 2020 Leave a comment

Market Quips & Synopsis Some brief points about selected markets or assets and look for the links within for added musings.

About current markets, I’ll open up by saying..

I notice there is dangerous trading going on, market capitalisations in some companies are extraordinary.
For example, how does $1 billion market cap on revenues of $20,000 sound?

ASX scuttlebutt says, “shorts” are trying to pressure companies into raising capital, some are seeing increased stock “promotion” activity and there are many people in the market “that don’t know what they’re doing or shouldn’t be there”.

I see the AUD and XAU (Gold) in a holding pattern, (see the AUD chart below);
they need to hold 0.7240 and $1,902 respectively,
breaks above 0.7355 & $1,978 should see a new lurch higher

Also watching AUDJPY closely, need to hold 76.00 to confirm “more risk-off”,
A move above 0.7730 suggests “risk-on” and higher equity indices

Another indictor to assess the steam in a S&P 500 decline is whether Japanese 10 Year Bonds (JGB”s) trade below 0.00%.

The S&P 500 is down 6% from recent highs,
Indicators are not clear in calling a new downward trend, however I think 3,272 is the target (a further 2.5% lower).

The Nasdaq 100 has now fallen 11% since its September 2nd high.
Looking for it to ease a further 2.4% to 10,814 before determining the strength of the decline.
The decline wasn’t a surprise, as written by me on August 29 and September 3rd  

Global portfolios have a 3% short position in either (or both) the Nasdaq 100 or the SOX index

My ASX 200 target is 5,803, which is 1.2% below the price as I write.

I’m pleased with calling Oil down from $44 to $39.30. Brent held $39.30 for the past week, 
has since rallied 10% in past 4 days….quick rallies are not always a preferred scenario

VIX remains relatively high at a reading of 26, the call option phenomenon has influenced this increase

The De-Equitisation story combined with rising money supply & low interest rates leads to my thesis that higher equities is the dominant and over-arching long term theme.

While we accept near-term rates will stay Lower for a while,
I think the long end of interest rate curve will rise.

AAII Survey exhibiting narrowest bull/bear spread since June 11, which is when S&P 500 had a 8.2% decline.
Since March 5th, more retail investors have remained bearish (than bullish). This survey remains a reasonable contrarian indicator as markets bottommed on March 26th and never looked back.

Oil Rig count showing no meaningful change of increase, see attached, number of rigs in operation has halved

I remain long term bullish on the Oil price and continue to accumulate positions (proxies) to benefit from this opinion.
Incidentally, I have a view there is a coming crisis in energy prices which will stoke inflation (albeit it may be 18 months away) 

In another edition, I’ll expand on various investing themes and I hope to soon publish my bullish thinking about Platinum on my Linkedin page.

That’s all for now…

warm regards,
Rob

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First day of September wipes out August

September 1, 2020 Leave a comment

Below is a continuing chart I’ve been posting for a while to disprove the illusion that the Aussie equity market is NOT screaming to new highs.

For the past 3 months, the ASX 200 has been trading sideways and today’s headlines from the Australian Financial Review following todays close of business was…..

“ASX wipes out most of August gains in single session.
The S&P/ASX 200 dropped 1.8 per cent on the first day of September, falling back to where it traded on August 3”

It’s a bit sad that the first day of September’s trading erased the WHOLE month of August’s efforts.

In fact, the ASX 200 is trading back to where it was on June 3rd, 2020.

The age of the stock picker is back….

September 1, 2020
by Rob Zdravevski
rob@karriasset.com.auASX 200 sideways

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Looking for a 15% decline in ASX 200

July 20, 2020 Leave a comment

Today, the ASX 200 closed at 6002.

I am watching if the index will trade lower to “fill” the following “gap-ups”,

5918, 5803, 5604, 5394, 5055 & 4701.

Those are declines of 1.4%, 3.3%, 6.6%, 10.1%, 15.8% & 21.7% respectively.

I’m betting on it trading closer to the 5,055 level.

20 July, 2020
by Rob Zdravevski
rob@karriasset.com.au

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