The Australian market rallied through August, keeping pace with global equities. Our local earnings season gave a series of mixed messages and displayed a significant variance in results between sectors, with COVID-19 continuing to be a dominant factor in the operating environment.

We have pulled back our overweight banks call following a period of sustained outperformance. Key factors that have driven bank outperformance are now fading or are embedded in the consensus view and the prospect of further outperformance is now more balanced than it was 6-12 months ago.

Iron ore prices have fallen 35% since they peaked in May 2021 (at an all-time high), providing a headwind for share prices of the major miners - Fortescue Metals (FMG.AX), Rio Tino (RIO.AX) and Vale (VALE3.SA). In the short-term, the direction of the iron ore price is likely to dictate where the share prices of the iron ore majors head and there is likely to be significant hesitancy among investors in an environment where the iron ore price is falling.

The pending takeover of Australia’s Afterpay by US-listed fintech Square has the potential to create a global non-bank financial giant. Both companies are payments specialists – APT for consumers and SQ for merchants – although both are increasingly blurring the lines.

Despite being in the middle of a global pandemic, Merger & Acquisition (M&A) activity has accelerated meaningfully through 2021.

Consensus earnings revisions have now been positive for over 9 months - the longest period since the GFC. Earnings have done much of the heavy lifting.

We think Sydney Airport’s (SYD) $8.25 cash takeover proposal, from an IFM Investors-led consortium of infrastructure specialists, has room to move higher. The IFM bid benefits from its industry member super fund members having deep pockets, rich asset level experience, and arguably one of the lowest costs of capital in the market.

Oil prices are up +300% since bottoming in mid-2020, as global markets saw demand fall by over 20% in response to worldwide activity restrictions.