FNArena’s Weekly Insights – May 17 2021

In this week’s Weekly Insights:

-June Index Rebalancing
-Inflation Is The 2021 Grand Debate
-Conviction Calls
-Research To Download

By Rudi Filapek-Vandyck, Editor FNArena

June Index Rebalancing

Since March 2007, reports Morgan Stanley, stocks that have been picked as the next fresh inclusion for the ASX200 have generated relative outperformance of no less than 7.5% from the period starting 20 days prior to the announcement up to implementation.

Throw index exclusions in the mix and the relative outperformance becomes 13.7% at a success rate of 81%.

No wonder stockbrokers pay attention to potential index changes. The numbers speak for themselves.

Looking forward to the next announcements to be made by index guardians at Standard & Poor’s, Morgan Stanley suggests Appen ((APX)) could potentially become the first of the WAAAX stocks to be dropped from the ASX100.

The plausibility of such a move is not considered very high, but it remains a possibility and Morgan Stanley suggests if Appen were to be dropped, Harvey Norman ((HVN)) appears best placed for replacement.

More important are potential changes to the ASX200 (see numbers mentioned earlier).

Morgan Stanley thinks there is a reasonable chance lithium producer Orocobre ((ORE)) will become part of the ASX200. The stock is considered a lower risk inclusion than its proposed merger partner Galaxy Resources ((GXY)). The merger between the two is expected to be finalised by August.

Other potential fresh index inclusions, according to Morgan Stanley, are Chalice Mining ((CHN)) and Uniti Group ((UWL)), and maybe (at a lower probability) Centuria Capital Group ((CNI)) too.

Stocks to potentially get booted out at the next revision include Resolute Mining ((RSG)), Austal ((ASB)) and Perenti Global ((PRN)) with added candidates at a lower risk G8 Education ((GEM)) and Westgold Resources ((WGX)).

Morgan Stanley is equally toying with the possibility that TPG Telecom ((TPG)) might be replaced by Metcash ((MTS)) in the ASX100 while Orica ((ORI)) doesn’t appear safe inside the ASX50.

Orica’s potential replacement would be Northern Star ((NST)) while if Ampol ((ALD)) might be replaced, that would potentially trigger the inclusion of Seek ((SEK)).

Changes in the ASX200 tend to be of more importance as they often include institutions selling out or climbing on board the corporate register to recalibrate portfolios in line with the new index composition.

Inflation Is The 2021 Grand Debate

Financial markets have proven too much of an enigma for many an investor and share market commentator in 2021. Is it all about elevated valuations, an abundance in liquidity and the come-back of Value vis a vis Growth?

Click to read the Full Report