Australia’s 10-year yield traded at 1.095 %– Who are the stock beneficiaries

  • Jun 10, 2020 AEST
  • Team Kalkine
Australia’s 10-year yield traded at 1.095 %– Who are the stock beneficiaries

Summary

  • Australian bond yields have risen by 50% since mid-March lows showcasing renewed optimism amongst investors on reopening of economies worldwide
  • Rising yields indicating shift in investors' interest towards risky assets away from protective assets like bonds
  • Share prices of major banks, asset management companies and Insurers are witnessing a surge demonstrating positive market sentiments as Australian economy paces towards recovery

Trading at 1.018% on 10 June, Australia’s 10-year bond yields have experienced a surge of almost 50% since mid-March reflecting investor’s optimism as economy reopens and picks up pace towards recovery. Steady rise of S&P/ASX 200 since mid-march along with strengthening of the Australian dollar are driving bond yields to rise further.

Higher yields imply investors have been selling bonds to buy stocks, considered risky. Preference for risky assets instead of protective assets like bonds shows optimistic stock market sentiments gained because of economies gaining strength. Australia’s central bank and the government have undertaken massive stimulus measures to direct the economy towards growth. The US and China also fostered positivity among investors by opening up their economy with US adding 2.5 million jobs in the month of May 2020. Dynamics of bond yields affects the financial industry directly, impacting their stock price. Let’s deep dive at some of the stocks:

Share price of Westpac Banking Corporation (ASX: WBChave risen by about 40% to $19.7 on 10 June from a low of $14.1 on 23 March. The annual dividend yield of the stock stands at 8.75%. Recently the group came in controversy for anti-money laundering and terror financing compliance raised by AUSTRAC, and the major has agreed that its failure to comply with the same was due to human and technological error. The compliance failure resulted in more than 23 million breaches between 2013 to late 2018.

Share price of Australia & New Zealand Banking Group Limited (ASX: ANZhave risen by 47.2% to $20.76 on 10 June from $14.1 on March 23rd. The stock has an annual dividend yield of 7.62%. As per an update on 2 June, ANZ declared that it had sold its NZ business UDC Finance for about 1.2 times tangible asset value providing an additional $439 million of Tier 1 capital or cash available from retained earnings.

Share price of National Australia Bank Limited (ASX: NABhave surged 45.2% to $20.16 on 10 June from $13.88 on March 23rd. Its annual dividend yield stands at 5.52%. As per its trading update dated 27 May, NAB announced raising $4.25 billion in the capital including $1.25 billion through share purchase plan. 

Share price of Commonwealth Bank of Australia (ASX: CBA) have risen 32% from $54.26 on 23 March to $71.6 on 10 June. The annual dividend yield of the bank stands at 5.97%. However, the shares of the bank fell by 0.63% after CBA acknowledged that the law firm Slater and Gordon filed a class action against it alleging that the bank sold worthless credit card and personal loan insurance to customers between 1 January 2010 and 7 March 2018.

Shares of asset management companies and insurers surge 

There is global optimism as investors stayed focused on the steady reopening of states and cities expecting that economic recovery will happen in the second half of the year. Investors are going for risky stocks despite US-China trade worries and fears stemming from the second wave of coronavirus infections. This resulted in a surge in yields globally and subsequently in Australia. Any changes in global stock markets and bond yields have an impact on solvency levels of companies. 

The share price of Magellan Financial Group Limited (ASX: MFGhas risen 97% to $60.6 on 10 June from $30.750 on March 23rd. MFG is a fund manager that extends international investment funds to investors in Australia and NZ and to international investors globally. Recently, MFG group launched Airlie Australian Share Fund, the next generation of Active ETFs, bringing together the features of the unlisted fund and Active ETF into a single fund, providing investors with greater flexibility and choice in the way they invest, delivering efficiencies to fund managers. In May, Magellan faced net outflows of $288 million that included net retail inflows of $228 million and net institutional outflows of $516 million. 

Platinum Asia Investments Limited (ASX: PAI), an investment firm that invests majorly in listed Asian securities, the share price stood at $1.02 on 10 Jun 2020, reflecting a 7.53% increase on 3 months price change . At the same time, for Bailador Technology Investments Limited (ASX: BTI), a growth capital fund focussed on IT sector, the share price was $0.84 on 10 June. PAI’s estimated weekly pre-tax net tangible asset value per share was $1.1389 as on 5 June while for Bailador NTA per share was unchanged at $1.24. 

The share price for Insurers like Suncorp Group Limited (ASX: SUN) and QBE Insurance (ASX: QBEstood at $10.36 and $9.3 respectively on 10 June, a rise of 10.78% and 25.13% M-o-M change respectively, backing investors’ confidence on the economy. Further, insurers are increasingly heading towards healthcare with a focus on virtual and telehealth services and increased adoption of cloud-based operating model amid coronavirus outbreak. 

 


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