Global Markets Overview – 5/7/14

High price momentum breakdown

The breakdown of high price momentum trading is an interesting thematic that has been developing over the last six to eight weeks.

The best index example of where high price momentum players sit is the NASDAQ, and prominent examples are Facebook, Tesla, Apple, Google, Hasbro, Cisco, Twitter, Weibo, Netflix et. al. All of these are price growth stocks and have been the best example of high price momentum over the past 11 months - it also shows that return on capital versus the return of capital has been the investment thematic.

However, the group can broken down further into high growth, high earnings and high hope neutral earnings. Monetisation of social media and future technology is always a very fine art; if the model is even slightly off, the investment world will pick holes, and fast; examples are the likes of Twitter, Weibo, and Tesla.

While the last 11 months of this high price momentum thematic, trading has seen the NASDAQ having its best year since 1997; the rotation movement currently beholding the markets is something to be aware of. This is not on the same wave length as the exponential rise of securities during the dot.com bust of 2000, where price momentum hit fear pitch on future prospects only, and saw anything with an 'e' or '.com' in its name skyrocket on future expectations. The new wave of online/technology investment is completely different.

Cisco for instance survived the dot.com bust and now is a premier provider in the telecom space, with earnings to back its elevated price. Apple and Google considered are statesmen of the group as earnings, market power and monetisation are being constantly refined with models that are fluid.

However, social media is a different player. Twitter is unable to consistently monetise its microblogging site to fully capture and penetrate its advertising dollars and could be the new version of "hope" shares.

While Twitters' revenue doubled at the last quarterly report, active users are slowing; what is always worrying is when lock-out shares of internal holders dump out on the first day of trade, and Twitter fell 18% overnight on this fact. While Twitter is under pressure, the difference between 2014 and 2000 is that it is the premier player in this space; and unlike the 2000 bust player, numbers are in the handfuls not the hundreds. Twitter, Weibo and Tesla will diversify over the coming years and return to levels pre-the-rotation out of high price momentum. This means return on capital will be the investment thematic in the coming year.

Ahead of the Australian Open

We are currently calling the Aussie market down 21 points to 5460 on the 10:00am bell (AEST) as the European and US sessions drag on markets. Iron ore was steady overnight, adding 10 cents to US$106 a tonne, but that is unlikely to support the materials space and the overcrowd yield trade is likely to see selling as well.

Japan is also back from a two-day public holiday and is likely to fall over 1%, which will drag on the region as a whole as Asia also awaits China HSBC Services PMI print and the BoJ's Monetary policy minutes. All are likely to be weak leads for equities.

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