Investment Matters

What Matters this week: Volatility has returned

What matters this week?  The return of volatility.

Over recent months, we have had a period of quite incredible calm and generally upbeat trading on the markets.  Incredible given the many external events that would normally give the market the heebies (geopolitical and sovereign debt issues, negative developments regarding international trade, global interest rates on the rise).

The All Ordinaries Index was down 3.2% yesterday and is ~flat as we go to print today.  Volatility has also been high intraday – as seen with wide trading range on the US market last night our time.

Where to from here?  It is hard to know whether the resilience will rebound, or whether the volatility will become a little more entrenched.  By the end of next week, we should have a better feel.

To company-specific developments:

Education services provider Navitas received a takeover offer (conditional, non-binding etc etc), at a 26% premium to the previous close, valuing the company at circa $1.97 billion (share price +21.8% on the day of the announcement).  MYOB (financial software) received a conditional takeover offer from private equity player KKR, at a 24% premium to the previous close, valuing the company at circa $2.19 billion (share price +19.1% on the day).  And Greencross (vets and Petbarn) is also in takeover crosshairs.  The company confirmed it has received “credible proposals” (share price +17.9% on the day.)

Mining companies are churning out so much cash they don’t know what to do with it (okay, a bit of an exaggeration and too generalised, but you get the picture).  Fortescue Metals (iron ore miner) is the latest to initiate a share buyback.

The big 4 bank CEO’s started fronting up to questioning at the House of Reps economics committee (ANZ today, CBA and Westpac yesterday).  Questions (from parliamentarians of both ilks) were lame compared to strategic and probing questions from RC Counsel Assisting Rowena Orr QC and her brethren.  It was a poor double-up of Royal Commission questioning and wasted an opportunity to address meaningful questions about the future of banking / structural conflicts / regulatory approach etc.  In response, the CEO’s couldn’t say much except sorry.  And that’s what they did.  Repeatedly.

Telstra’s shareholders have demanded executive pay start trending in the same direction as the company’s profits.  The company has listened (with the incentive to do so provided by the remuneration vote at the upcoming AGM), and executive pay was wound back. 

And hot off the press - Domain (real estate online advertising) has put out an earnings downgrade for FY-19 to date.  Lower new listings and auction volumes, mainly in Sydney and Melbourne, have been cited as the reason.  Implications are 1/ for Fairfax (retains 59.4% ownership of Domain) and the planned "merger" with Nine Entertainment, and 2/ read through to the health of Australia's resi property market.