Note from the MD: Earnings reports flood in, lithium fundamentals tested

While ASX 200 has slightly continued it’s retreat, it is today (15/2/23) only 3.74% away from breaking its 20 April 2022 all time high, as a flood of earnings reports have started coming in. CSL revenue was boosted 19%, but net profit was down 7%. Treasury Wines lifted their dividend by 16.7%, while Netwealth posted record earnings. CBA released a record half yearly profit of $5.2 billion, but its shares dropped more than 5% as their net interest margin was shown to have peaked in October. JB Hi-Fi admitted consumer spending has started to slow.

While ASX 200 has slightly continued it’s retreat, it is today (15/2/23) only 3.74% away from breaking its 20 April 2022 all time high, as a flood of earnings reports have started coming in. CSL revenue was boosted 19%, but net profit was down 7%. Treasury Wines lifted their dividend by 16.7%, while Netwealth posted record earnings. CBA released a record half yearly profit of $5.2 billion, but its shares dropped more than 5% as their net interest margin was shown to have peaked in October. JB Hi-Fi admitted consumer spending has started to slow.

Macquarie and UBS have been spotted underwriting a large recapitalisation equity deal in New Zealand, with retirement living group Ryman Healthcare looking to raise NZ$902 million to repay its US private placement debt.

Pressure is building around what is debatably still the hottest commodity on the ASX – lithium. As at Monday 13 February, Lithium carbonate prices fell for the eleventh straight day in China, and 5 of the 16 most shortest stocks on the ASX are lithium developers that are near production. This includes Core Lithium, Vulcan Energy, Lake Resources, Sayona Mining and Liontown Resources (who earlier this month blasted their first batch of ore out of their open pit mine in Western Australia).

The future movement in the battery metals price is something that none of the world’s biggest investment banks can agree on. Goldman Sachs has rocked the market twice with bearish lithium reports, while the Macquarie research team thinks the electric vehicle staple will average US$62,596/t throughout 2023 and remain steady at US$72,500/t until 2026. UBS gave the sector after they upgraded their lithium price forecasts by 50%, which sent miners like Mineral Resources flying. Morgan Stanley holds a price outlook of 20% below consensus, but they also thought prices would fall to US7,700/t in 2021 – which was right when lithium began the biggest bull run in its history.

Australia is the world’s largest producer of the critical mineral, ahead of China and Chile, which is a position they are expected to hold for the time being as they bring on the most new supply between 2023-2025. A flood of Canadian explorers that have listed on the ASX over the past couple of years are expected to become contenders for the top spot from 2026 and beyond.

The XJO has failed to break through resistance at 7593, slightly pulling back from the top. We should see support at the 50-day Moving Average (7293) and further support at the 7251 level.  As the market converges to the 50-day MA it could be signaling further upside potential and could signal another attempt to break all time high resistance.

Implied Volatility has increased slightly in the last week but still near 52-week lows, supporting a bullish market outlook.

One investor who has a definitive investment strategy for what he thinks is going to be a challenging 2023 for the economy is Gregg Taylor, Investment Director at Salter Brothers Emerging Companies (ASX: SB2).

Gregg will be joining us this Friday 17th February at 12pm (AEDT) on our The Insider: Meet the Fund Manager webcast, where he’ll provide insights into his ‘defensive growth’ strategy for picking winners in what he sees as a 2023 recovery trade. He’ll also discuss his three favourite stocks and explain how small caps may lead the way up over the next two years despite high rates and inflation. To join us for this session, click here.

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