Evening Wrap: ASX 200 falls as investors rotate from leading tech to lagging defensive sectors

 The S&P/ASX 200 closed 18 points lower, down -0.26%. 

Investors rotated from outperforming tech stocks into lagging sectors like energy and defensives on Thursday, Australia's trade surplus narrows as iron ore exports slide, Japan's GDP growth surprises to the upside, retail stocks continue to tumble as consumer savings dwindle and Citi's take on Australia's GDP data.

Let's dive in.

ASX 200 Session Chart

ASX 200 lower in a relatively uneventful session (Source: Market Index)

Markets

The ASX 200 finished lower amid a heavy rotation out of sectors that led (tech) into sectors that lagged (energy and defensives). The rotation perhaps flagged the heavy concentration in tech and most large cap names sold off rather aggressively, including Xero (-5.3%), Wisetech (-3.4%) and Altium (-4.9%). That said, this marks the first meaningful pullback for tech since mid-May. Does this mark a period of consolidation for tech after such a massive run? And if so, does it open up a window of opportunity for laggards to lead?

Economy

Australia’s trade surplus eased to $11.2bn in April from $14.8bn in the previous month.

• Consensus expected a surplus of $14.0bn

• The lowest surplus since August 2022

• Overall exports fell 5.0% in April, reflecting a decline in softening commodity prices and a fall in shipments to China 

Japan’s Q1 GDP accelerated to 0.7% from 0.1% in the previous quarter.

• Beat consensus expectations of 0.5%

• Year-on-year, GDP is up 2.7% vs. 1.9% expected

• Capital spending rose 1.4%, with manufacturers’ business spending growing at the fastest rate since 2015

Latest news

Interesting news and movers

Trading higher

• +11.1% Antisense Therapeutics (ANP) – First patient dosed

• +8.7% Service Stream (SSM) – $50.2m ATO refund

• +5.9% Kazia Therapeutics (KZA) – Clinical study results

• +5.4% Airtasker (ART) – 4 Ventures $6.5m for 20% stake in Airtasker UK

• Energy sector move: Woodside (+1.1%), Beach Energy (+3.5%)

• Coal sector move: New Hope (+8.6%), Whitehaven (+5.5%), Yancoal (+4.4%), Stanmore (+4.3%)

Trading lower

• -9.5% Enero Group (EGG) – Guidance

• -5.7%  Boral (BLD) – Trading update (Wed)

• -4.8% Platinum Asset Management (PTM) – FUM update (Wed)

• -4.2% Marley Spoon (MMM) – Outlook

• -3.8% Silver Lake Resources (SLR) – Canadian fires operational update

• -3.7% Westgold Resources (WGX) – Production update

• -2.2% Alpha HPA (A4N) – MMI payment from CDI

• Retail stocks move: Lovisa (-5.2%), Premier (-3.3%), Super Retail (-2.4%)

• Tech sector move: Xero (-5.3%), Altium (-4.9%), Wisetech (-3.4%)

Broker notes

Citi’s take on Australia’s GDP data: 

• “Headline GDP growth probably came in around the RBA’s expectation but the low unemployment rate and demand for services has lifted unit labour costs and further weakened already moribund productivity growth.”

• “Today’s Q1 GDP data validates the RBA Boards guidance of further possible interest rate increases. We continue to expect 2x25bp increases in he next two months for a peak of 4.60%.”

Goldman’s take on Boral (BLD)

• Neutral with $4.00 target price

• “Management stated that the 2H23 EBIT run rate was ahead of 1H23 and is expected to remain ahead for the full year. Previously, Management had guided to 2H23 EBIT being in line with the 1H.”

• “Management noted that while volume trends for the YTD are up on FY22, the rate of external volume growth is slowing in 4Q vs previous three quarters.”

• “Additionally, May run rate is slower after shorter April month compared to Q3FY23 nationally driven by the residential sector.”

Goldman’s take on Metcash (MTS)

• Neutral with $3.50 target price

• “We downgraded MTS to Sell on 9 March 2023 on market share loss to Supermarket majors as well as category softness in Hardware.”

• “Since then, the stock is -14%, ASX 200 is -3%. The upside on our TP of A$3.50/sh is now 0.3%.”

• “Our preferences in the Staples sector remains WOW on margin expansion and clear path to market share gain, and EDV given defensive sales/earnings from alcohol retail and gaming at an attractive valuation.”

• “We are Sell on COL due to potential margin erosion from the near-term ramp-up cost of supply chain projects including Ocado and Witron.”

Scans