Question 1: The big question on many Aussie investors’ minds is: does this look like the brink of a global recession? I know this is a crystal ball question, but what would be your reasons for yes or no?
Answer: I don’t think there will be a global recession.
Reasons for a recession:
- Central Banks have already lifted interest rates very aggressively. This will hurt businesses and damage consumer confidence;
- Current banking liquidity event will make Banks more cautious about lending to businesses and entrepreneurs. Finance will be harder to get, and more expensive for less creditworthy borrowers;
- Yield curve continues to be inverted. Historically, an inverse yield curve has been a very reliable predictor of a recession.
Reasons for no global recession:
- Central Banks will flood the system with money in the event of an ongoing banking crisis. They have learnt the lessons from the GFC;
- Governments will also stimulate the economy if they fear recession;
- There is still enormous pent-up demand hanging over from Covid-19. This will provide a core level of demand in the economy;
- China doesn’t want a recession.
Question 2: I own an ANZ hybrid issue, ANZ Capital Notes 3 (AN3PF). ANZ has written to me saying that they will redeem the notes this week. They have also launched a new issue, ANZ Capital Notes 8. However, there is no “rollover” option and I can’t apply for ANZ Capital Notes unless I go through “a financial adviser who associated with a syndicate broker”. Why can’t I apply directly to ANZ?
Answer: Under new laws that require issuers of financial products to publish a Target Market Determination (TMD), ANZ has determined that capital notes (or hybrid securities) are high risk and are not suitable for most retail investors. Hence to apply for an issue, you have to go through a financial adviser who has made arrangements with the syndicate broker. ANZ’s position is not unique – all the other major banks have taken the same course of action with their hybrid capital notes. The absurdity of this position is that you are free to invest in ANZ Capital Notes 8 once they are listed on the ASX (by buying through an online broker), but you are effectively banned from subscribing in the primary issue.
Question 3: Carales.com (CAR) has a rights issue. Should I take them up?
Answer: Carsales.com is raising approximately $500m to buy a further 40% of Webmotors, the #1 online digital car marketplace in Brazil. Carsales will increase its ownership in Webmotors from 30% to 70%.
The acquisition is being funded through a 1 for 14.01 entitlement issue. For every 14.01 shares you currently own, you are entitled to buy 1 new share at $19.95 (CAR closed on the ASX yesterday at $21.76). Fractions of entitlements are rounded up to the next whole number.
You have two choices. Take up the entitlements by paying $19.95 per entitlement – payment must be received by Thursday 30 March. Or secondly, do nothing. If you take no action, your entitlements will be auctioned to institutional investors and you will receive any premium (that is, the difference between the auction clearance price and the subscription price of $19.95). The acquisition (and capital raising) have been positively received by the market. Current broker consensus target price is $25.11. Carsales says that it will be EPS (earnings per share) neutral in the first year, then should be accretive from year two. Suggest that you consider taking up your entitlements.
Question 4: Are there a lot of dividends to be paid shortly, and will this be a positive force on the market?
Answer: Yes, there is a truckload of dividends about to be paid. By way of example, Wesfarmers pays on 28 March, CBA and BHP on 30 March, Telstra on 31 March and Woodside on 5 April. Markets are ultimately about supply and demand, and if investors find themselves cashed up, typically, this will result in more demand for shares. Yes, it should be a positive force.