So far so good for our Blue Chip stocks. Our Blue Chip outperformers are beating the underperformers in this reporting season for the six months to 31 December 2020. There have been a couple of hiccups, but the twin pillars of the Blue Chip Value Portfolio of resources and banks are proving there worth with solid results and optimistic outlooks.
What's happening with Blue Chip mining stocks?
On the mining front, commodities prices have now been strengthening for some time on back of iron ore and copper, driven by the rise and rise of China’s economy. Energy prices have also been climbing as a result of tightening supply and increasing demand.
What about the big four banks?
The profitability outlook of both the big miners and the big banks are highlighting the importance of strong balance sheets, which we have been stressing. Both are beneficiaries of the nascent economic recovery and can benefit on the other side of COVID because of they have financial flexibility.
NAB’s recent $220m purchase of a small neo-bank called “86 400” is a reminder that these niche online banks don’t have the competitive advantage of the incumbents, namely access to low cost funding from customer deposits. The demise of Xinja Bank also highlights this.
We continue to think the outlook is positive for the big banks because the Reserve Bank is keeps on keeping on its monetary policy program of issuing and purchasing bonds through QE, effectively keeping long-term interest rates low, encouraging credit growth, particularly in housing.
There have been some hiccups, notably AMP, but this is very stock specific – see our note on page x – with Ares Management backing off purchasing the entire business and concentrating on funds management business AMP Capital.
What about Telstra (TLS)?
Telstra continues to be a rock for the portfolio, despite the headwind of the loss of revenues from its infrastructure to NBN. You could almost add to the twin certainties of death and taxes, the rise and rise of wireless communications.