BFC3540 Investment Debates – Week 3 – TCL & SYD

Last week we discussed the fact that both SYD and TCL have pretty cool projects coming up – SYD’s Sydney Gateway project and TCL’s WestConnex acquisition. In spite of how exciting they may be, they are huge projects that will take plenty of time, additional capital and potential risks that might derail the positive news. Sort of like entering your degree and getting ravaged by crippling depression and hecs debt.

TCL finished the week down 0.36%. On the news side of things, ITS ANOTHER QUIET ONE. Again, the last two articles should give you some good material about TCL (strong macro factors that support TCL’s growth, growing population, growing vehicles figures, expensive stock, rising interest rates etc.)

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Remember how we discussed that TCL is utility/yield stock whereby investors hold the stock for its dividend and minimal capital gain. And further to that, when interest rates increase, TCL’s share price would theoretically fall to increase/maintain yield?

The US 10 year treasury rate is most commonly referred to as the “risk free rate”. If you look at the chart below, you will notice how the US10Y has edged higher – while TCL’s share price has tanked.

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SYD is in very much the same boat down 2% for the week – following the behaviour of the US10Y. SYD announced their Sydney Airport Traffic Performance for August 2018 (see below)

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The numbers are positive and in-line with expectations – I don’t expect the news to have a material impact on the share price. It just goes to show that investors have high expectations of SYD to continue to experience moderate growth in performance, anything short of that will result in the stock being sold down.

Overall, it’s sort of sad to see SYD and TCL become a proxy for bond yields/risk-free returns. I’m sitting on the fence for this one, I’d personally abstain from both LONG/SHORT positions. If I had to make a position, I’d probably take a small long position in either of the stocks.

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