Barclay’s bull or Pearce take? Sell in May and go away
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Each Friday, corporate advisory firm Barclay Pearce highlights the key trading themes of the week, along with which companies and sectors Stockhead readers should be keeping their eye on.
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.
For Trent Primmer, Head of Trading at Barclay Pearce, 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.
“There might also be a seasonal pull-back with the big banks going ex-dividend, so that can exacerbate things a bit,” he said.
At the same time, the inflation data has partly reaffirmed the ongoing rotation from ‘growth’ to ‘value’, and “we’d prob expect to see growth stocks coming off considerably in this market,” Primmer said.
“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.”
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, Primmer 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.
But 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”, Primmer said.
In addition, the post-COVID bull market left investors a bit “spoilt for options”.
“We’ve seen these big gains for sectors like BNPL, other tech stocks and cryptos. In that environment, agriculture probably seemed a bit boring.”
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.”
More broadly though, Primmer said the stage is still set for broader strength in the commodities space, and investors should act accordingly.
Even with the recent ASX wobbles, “I think you’ll still get a lot more money moving into these small cap explorers with commodity prices where they are”, Primmer said.
And more broadly, the sector represents a more stable option as the market goes through some inflation-related jitters.
“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,” Primmer said.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.