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CAP EDGE WEEKLY 17th November

TripleC


Published on November 16, 2014

Now looking at this ‘risk off’ mentality and the Medibank IPO, a few interesting points can be raised. Firstly, it is the common knowledge of most financial industry professionals that Medibank has great potential to provide a stag profit as the demand overflow translates into strong buying day one. Also, the way it has been priced means that many domestic institutions have not got an allocation and will also need to buy stock on market once it has listed. Looking at capital flows, the amount of money ($4 - $5bn) that is going into the Medibank IPO has also been ‘ missing ’ from the markets as investors set aside capital for the IPO. While this works out to be only 1 to 2 days of standard trading volume on the ASX, it is still a significant amount, and even more so psychologically. Should the Medibank IPO perform well, then a large portion of this money could potentially flow back into the markets and likely into more ‘riskier’ assets. Markets are driven by people and their psychology, when investors or traders make money, they tend to take a bit more risk on the next trade and should this ha ppen then it’s possible that small cap stocks will also see some buying come back post the Medibank IPO, potentially kick-starting a Christmas rally. Medibank will be listing on the 25 th of November. Free Trade Agreement – China With over $100bn worth of exports and $49bn of imports, China is Australia’s biggest trading partner. Australia is now looking at a free trade agreement (FTA) with China, which would directly stimulate our agriculture Sector. New Zealand saw over 400% growth in their agricultural exports when they signed their FTA with China, so it’s clear that investors are beginning to also get excited about an agreement being inked. While current listed agricultural stocks are limited in choice, it’s likely that a deal of this significance could see a lot more IPO’s in the agriculture space. As more money can be made from farming, it will attract more capital and investment. While farming will likely see gains, there will be many businesses that will enjoy the benefits of a FTA being signed. As mentioned last week, E Cargo is listing on the ASX and is a Chinese focused company that helps Western companies sell goods into China. This could become a theme for investors to follow as many companies are likely to experience increased sales and improvements to their bottom line as the tariffs are lifted. Bega is one company that has been looking to expand into Asia and could benefit from the FTA as it becomes cheaper and easier to export dairy into China. Chart: Bega Cheese Weekly