Barclay’s bull or Pearce take? Sell in May and go away

Each Friday, we highlight the key trading themes of the week, along with companies and sectors investors should be keeping their eye on.

As part of the weekly recap for Stockhead, our Head of Trading, Trent Primmer, was interviewed to share some trading highlights of the week.

This week’s interview took place amid a broader market selloff, with the ASX posting four straight days of falls for the first time since October last year.

And for Trent, it’s clear that there’s “a lot of nerves in the market at the moment”. He highlighted the US inflation scare on Wednesday night, which has markets re-questioning whether policy stimulus will have to be tightened earlier than expected. On the domestic front, he noted that May has historically been an under-performing month on the ASX. He said:

"There might also be a seasonal pull-back with the big banks going ex-dividend, so that can exacerbate things a bit.”

At the same time, the inflation data has partly reaffirmed the ongoing rotation from ‘growth’ to ‘value’.

Trent-Primmer

 

“We’d prob expect to see growth stocks coming off considerably in this market. Then you’ve got that strong growth in commodities with the likes of iron ore, nickel copper and lead that we expect to still be fairly stable.”

    - Trent Primmer, Head of Trading

 

Don't forget about...

With copper and iron ore prices at decade highs, the post-COVID strength in commodity stocks has been well documented.

But in terms of his sector focus this week, Trent highlighted Australia’s agriculture space which he said has been “overlooked”. ASX agriculture stocks had a decent year in 2020, but gains in the sector were still well short of the booming post-COVID returns enjoyed by other sectors.

Regenerative farming company Wide Open Agriculture (ASX:WOA) led the pack, but has traded flat so far in 2021.

Longer-term, agri-tech solutions are set to play a key role in the Australian farming sector’s goal to reach $100bn of production by 2030. However, Trent added:

"More recently, a lot of investors have turned sour on some of these agri businesses, particularly when we were in that drought phase and the bushfires."

In addition, the post-COVID bull market left investors a bit “spoilt for options”.

Trent-Primmer

 

“We’ve seen these big gains for sectors like BNPL, other tech stocks and cryptos. In that environment, agriculture probably seemed a bit boring.”

     - Trent Primmer, Head of Trading

 

Aside from a mouse plague of historic proportions currently affecting NSW, Australian farmers have enjoyed a bumper year for crop yields as the weather gods finally smiled.

"I’m not expecting them to shoot the lights out short-term; as a point of interest, it’s not an area that gets looked at closely by the market. So just for variety it’ll be interesting to see whether demand picks up as part of this rotation we’re seeing out of tech."

Don't overthink it

More broadly though, Trent said the stage is still set for broader strength in the commodities space, and investors should act accordingly.

In recent weeks, he highlighted some nickel stock picks on the Barclay Pearce radar and ran the ruler over ASX copper explorers.

Even with the recent ASX wobbles, Trent said:

“I think you’ll still get a lot more money moving into these small-cap explorers with commodity prices where they are.”

And more broadly, the sector represents a more stable option as the market goes through some inflation-related jitters.

Trent-Primmer

 

“I wouldn’t expect them to be totally immune from a big selloff, but I don’t think it would be as bad as the broader market. Commodity stocks will be the last to fall.”

      - Trent Primmer, Head of Trading

 

 

To read the full Stockhead's article, click here.

 

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