Strong US lead may push Asian markets higher

<p>Asian markets may trade higher today following strong leads from the US overnight. Despite new concerns in Spain and the fall in the Euro, US […]</p>

Asian markets may trade higher today following strong leads from the US overnight. Despite new concerns in Spain and the fall in the Euro, US and European markets registered gains last night.

In Australia, Wesfarmers will hold its investor day today and the presentation will provide a detailed look at the strategy behind the group’s operations.

In terms of Coles, today’s focus is on putting the recent turnaround into perspective – no real surprise in terms of comments or numbers. What caught our eye is the 2% net floor space growth target over the next few years which means Coles is likely to continue expanding its network on a net basis.

This sends a signal to Woolworths that the recent price war is unlikely to bed down anytime soon.

On Bunnings, the group says it is likely to open another 18 Bunnings warehouse sites in 2013 with around 80 sites in the overall pipeline to come online over the next few years. This business is far from maturity and again sends a strong message to Woolworths that its Masters concept has a lot of catching up to do.

Our other focus is on Target and the comments around that business. This might seem odd but we note Target’s earnings decline has been a major drag on the group and its an area of immediate focus for management.

The comments here might disappoint – competition is unlikely to abate anytime soon and a new strategic agenda is expected to be implemented over the next four years – so no quick fix for Wesfarmers. More hard work but at least there is a solid strategy to turn things around.

Bottom line: The presentation doesn’t contain any smoking gun which impacts current earnings estimates of valuation but it does provide a great insight into the strategic plan behind Wesfarmers and this is what many investors are looking for when weighing up the choice between investing in Wesfarmers or investing in Woolworths.

Food and liquor competition is unlikely to die down anytime soon and we see this as a major threat for Woolworths and Metcash. Coles is bunkering down to restore its former glory. There will be some disappointment in the outlook of insurance and resources, perhaps some modest earnings downgrades, but nothing significant to what the market already expects.

In terms of coal demand, management notes increasing demand from Asian mills in recent months and ongoing supply issues in Australia, which is contrary to recent rumours about Australian minerals shipments being knocked back from Asian customers. Japanese demand is key.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.