Trade Executed

We executed a (mostly) across the board trade for large accounts on Thursday buying ASX Limited (ASXFF) which is the stock exchange in Australia. The trade obviously increases our exposure to financial stocks and takes us back to Australia after having been out for about seven months.

First from the top down I have been concerned that Australia is at risk for some sort of housing problem although with a far less severe magnitude as occurred in the US and so I sold our holding in ANZ Bank (ANZBY) for large accounts and at the same time sold our Aussie ETFs for their large exposure to the banks. ANZBY is down 13% since that sale and the ETFs are down a little more which is nice but I would not call the sale a major transaction.

Going forward I think housing can still be a drag and so I think the banks will underperform but my take overall is that things in Australia look good–drawing this conclusion means you have to believe that China will not stop buying resources and I think Yanzhou’s intended purchase of Gloucester Coal supports that belief.

I would also note that the SPX is right at its 200 DMA (give or take) but we have more cash raised than I think is ideal by virtue of selling American Tower. I wanted to buy something with relatively low volatility and higher yield (more on that in a moment) and actually if we have more purchases to make I think most of them, but not all, would be lower vol and higher yield like ASX.

In terms of picking an exchange stock, I think I’ve been telegraphing this for a while in how much a talk about this group and obviously this adds exposure in the financial sector while still keeping away from US or European banks and Aussie banks for that matter although I would reiterate that I do not think the Aussie banks face anywhere near the magnitude of risk that US and European banks do.

The stock itself is cheap in terms of where it has traded in the last couple of years and while it is a little cheaper valuation wise than where it was a couple of years ago it is not a deep value stock. It has essentially no debt, almost 2/3s of the share price is in cash and yields abut 6% with a pretty reasonable payout ratio.

A little while back ASX was going to merge (be taken over) by the Singapore Exchange (SPXCF) but the deal was nixed. While I think odds of a takeover are low it would not be a black swan event either.

After lagging the US for a couple of years I think Australia can come around again and if that turns out to be correct then I would ASX to do a little better than the broader Aussie market.

As a small logistic item, we bought the stock directly in Australia so it was entered overnight on Wednesday US time which is Thursday in Australia. We bought in this way because it doesn’t trade enough volume here for our entire client base but the name is very liquid on the home market. If we buy the name for any new clients for whom it is appropriate I am quite certain the we could get individual trades complete on the US pinks.

6 Comments

  1. Roger. If I may inquire about the logistics: You bought ASX on the Australian Exchange instead of using the Pink Sheets, which would be ASX.AX on Yahoo! Finance, yet you noted the 5-letter PS symbol? What do you now own (PS shares or Australian Exchange shares) and where can you sell them? Also, what were the commissions and other expenses involved, and who is your broker. Thanks, just trying to get smarter.
    JCarr

    Reply
  2. We executed a the trade on the Aussie exchange. Shares traded in the local (in this case Aussie) market = the pink sheet symbol that ends in “F” in this case ASXFF. In clients’ accounts it shows up as ASXFF even though we executed in Oz. If we sell the position we can sell it in either market (the local market or pinks) depending on our preference at the time. We switched custodian to Ameritrade in September and their policy for RIAs is the web rate as long as we allocate electronically (we place trades as block orders and then allocation via a spreadsheet-like function). I don’t know if there was any slippage in terms of currency but if there was it was in the neighborhood of a couple of hundredths of a penny (I only calculated to make sure the big figure was correct).

    Reply
  3. Roger. I appreciate the info on you foreign trade. Couple more questions (and assumptions): I assume that Ameritrade has a foreign desk that stays open 24 hours and, therefore, the trade was executed real-time during the hours that the Australian Exchange was open? Final question, was the transaction similar to buying on a US exchange, where you put in an order for XXX shares at a bid price you specify, and you can specify All or None? Thanks for the education.
    JCarr

    Reply
  4. negative on the 24 hour desk. i had to call the trade in to TD who then called it in elsewhere. i had to pick a limit price (i could have given a market order but not advisable) that i thought w/b executable with the risk getting a nothing done or partial fill. no idea about all or none, i’ve never used that kind of restriction. Obviuously I could have picked any limit but I wanted to get the trade done so I went with something i hoped would be executable.

    TD still has a way to go with this but it is much better IMO than SCHW was when we left.

    Reply
  5. Thanks for the responses. Yes, they (brokerages) do have a ways to go; in this day and age of world wide web, seems like one could just put in a trade on any exchange in the world similar to the way it is done on a US exchange. Look forward to the day when that is the case.
    JCarr

    Reply
  6. G’day Roger G’day JCarr,
    ASX had a practical monopoly down under, that maybe changing.
    http://theconversation.edu.au/chi-x-launch-what-does-it-mean-for-the-australian-market-3900
    &
    http://www.smh.com.au/business/markets/slow-start-for-rival-bourse-operator-chix-20111031-1mqxc.html
    ASX automated trading in 1987, & upgraded since.
    http://www.gocurrency.com/articles/asx.htm
    Many Aussies trade on-line where orders can be input 24/7 & transacted 10:00 /4:15 Sydney time.(Google share trading platforms au) US legislation may limit you. No provision for all or nothing (SFAIK), ‘at market’ orders can’t be placed out of hours.
    Be aware that Aussie companies use significant foreign financing (ie.Europe). Also be aware 4X volatility.
    There are many good high dividend stks listed on ASX. On-line brokerage is around 0.11% with minimum $15 /$25 AUD. Options market is tiny but we do have CFDs through ‘market makers’ (illegal in US).
    good luck mate
    rob_legg_@hotmail.com

    Reply

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Trade Executed

We executed a (mostly) across the board trade for large accounts on Thursday buying ASX Limited (ASXFF) which is the stock exchange in Australia. The trade obviously increases our exposure to financial stocks and takes us back to Australia after having been out for about seven months.

First from the top down I have been concerned that Australia is at risk for some sort of housing problem although with a far less severe magnitude as occurred in the US and so I sold our holding in ANZ Bank (ANZBY) for large accounts and at the same time sold our Aussie ETFs for their large exposure to the banks. ANZBY is down 13% since that sale and the ETFs are down a little more which is nice but I would not call the sale a major transaction.

Going forward I think housing can still be a drag and so I think the banks will underperform but my take overall is that things in Australia look good–drawing this conclusion means you have to believe that China will not stop buying resources and I think Yanzhou’s intended purchase of Gloucester Coal supports that belief.

I would also note that the SPX is right at its 200 DMA (give or take) but we have more cash raised than I think is ideal by virtue of selling American Tower. I wanted to buy something with relatively low volatility and higher yield (more on that in a moment) and actually if we have more purchases to make I think most of them, but not all, would be lower vol and higher yield like ASX.

In terms of picking an exchange stock, I think I’ve been telegraphing this for a while in how much a talk about this group and obviously this adds exposure in the financial sector while still keeping away from US or European banks and Aussie banks for that matter although I would reiterate that I do not think the Aussie banks face anywhere near the magnitude of risk that US and European banks do.

The stock itself is cheap in terms of where it has traded in the last couple of years and while it is a little cheaper valuation wise than where it was a couple of years ago it is not a deep value stock. It has essentially no debt, almost 2/3s of the share price is in cash and yields abut 6% with a pretty reasonable payout ratio.

A little while back ASX was going to merge (be taken over) by the Singapore Exchange (SPXCF) but the deal was nixed. While I think odds of a takeover are low it would not be a black swan event either.

After lagging the US for a couple of years I think Australia can come around again and if that turns out to be correct then I would ASX to do a little better than the broader Aussie market.

As a small logistic item, we bought the stock directly in Australia so it was entered overnight on Wednesday US time which is Thursday in Australia. We bought in this way because it doesn’t trade enough volume here for our entire client base but the name is very liquid on the home market. If we buy the name for any new clients for whom it is appropriate I am quite certain the we could get individual trades complete on the US pinks.

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