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3 things you may have missed during the US election circus

After the most unusual US election campaign in living memory the day of decision is finally here. Markets will work their way through the result, with a focus on implications for global and US growth, trade and potential US Federal Reserve action. However, the US is not the only factor global investors must consider. And while all eyes were on the North American circus, there were a number of developments of high importance to Australian investors.

The data in China is positive

While you were watching the Trump shuffle, central authorities in China are reporting a modest expansion. Of particular note were manufacturing PMIs. Both the official and private indices moved firmly into expansion territory. Retail sales are growing steadily at an annual rate around 10.5% pa, and industrial production continues to increase at around 6% pa.

The trade data is of particular interest. While exports slipped further, imports rose, despite further devaluation of the Chinese Yuan.  China bears immediately seized on the slip in exports as sign of further slowing of the economy. However, this contradicts the clear evidence of a steady state in Q3, with GDP expanding at better than forecast 6.7%.

Another interpretation of this data is that the desired and predicted transition of the economy in China is occurring – consumer demand is rising as the industrialisation process slows. Once the election is out of the way this better than expected outlook for China may seep into the global investing consciousness.

 Industrial metals such as iron ore and copper are soaring – and Australian listed mining stocks are still trading at discounts to valuations at current spot prices.

Market darlings were bashed

High growth, high Price to Earnings ratio stocks fell to earth. As investors took risk off the table, these former favourites *ahem* “underperformed”.  If CSL, Dominos and REA Group (among others) are on your long term shopping list, now is the time. Give these a once over before the market wakes up.

Combining these two themes, if Bellamys’, Blackmores and Bega Cheese are on your market shopping list there are compelling reasons to check current prices

Banks reported

The big four reported over the last fortnight (CBA quarterly, the rest annually). The picture is muted – growth in loan books remains lower, and profits went backwards as cost and margin pressures emerged. On the positive side, bad and doubtful debts remain under control and capital ratios are healthy ahead of increased requirements next year.

The financials index (excluding property) is still around 10% off a one year high, despite a recent rally. Dividend yields in banks look more attractive than 1.5% cash rates. Add franking, and lower share prices, and the case for higher cash flow blue chip share investment gains momentum.

In other words, while we were all wondering if US politics could get any more bizarre, the investment world is moving on. Many of the recent events obscured by the campaign are positive for Australian shares – miners, high growth stocks, higher dividend yielding stocks.

These groupings capture around two thirds of the major market index, establishing a “ground up” case for a rally into year end.

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