Stock Debates – Exam Edition!

It’s been a long 12 weeks and the dreaded exams are finally upon us.

Now as students we all want to stack up those elusive HDs in the transcript to impress recruiters, and since the exams for this unit make up 40% of the final mark – it’s crucial that you ace this assessment and get a shot at the big HD.

In past exams, VBA-related questions took up roughly three-quarters with the rest generally revolving around the stock debates. This means that content from the stock debates are potentially worth around 25% of the total marks in the exam and 10% for the unit.

So to start off, we have a ‘lazy man’s summary’ of the stock list from the stock debate:

Consumer Staples:

  • A2 Milk Company (ASX: A2M)
    • Liquid milk, baby formula
    • US, China and ANZ
    • Slightly disappointing FY19 results
    • Heavily dependent on Chinese growth/consumers
    • Needs time to shake off negative sentiment
  • Treasury Wine Estates (ASX: TWE)
    • Wines, winemakers and distributors – primarily in ANZ and US
    • Sold in more than 100 countries
    • Good FY19 result, positive outlook
    • Share price upwards trending and gathering momentum
    • Susceptible to changes in the global outlook, correlated with the general market conditions i.e. ASX200

Property:

  • GPT Group (ASX: GPT)
    • Property portfolio
    • Inverse relationship with interest rates
    • Office and shopping centre portfolio
    • More vulnerable due to no value added
    • Competitive space
  • Goodman Group (ASX: GMG)
    • Property portfolio
    • Inverse relationship with interest rates
    • Value added property e.g. ecommerce, data centre
    • Strongest REIT in my opinion

Banking:

  • National Australia Bank (ASX: NAB)
    • Showing strength due to property, lower rates, not strong but fair economy
    • Liberal victory
    • End of royal commission in one piece
    • Company transition and cost cutting
  • AMP Bank (ASX: AMP)
    • Sent to the doghouse due to royal commission
    • Raised $650 million in capital to turn around business, this has significantly impacted share price
    • Client retention is a major hurdle to overcome for reputation repair
    • Pivotal decision-making time for AMP, outlook is bleak at the moment

Now in terms of the types of questions you may be asked:

Questions centered around anticipated impact and a focus on the latest industry/company news for specific sectors such as:

Why do you think [company 1] wants to acquire [company 2]?

  • Takeover of competitor in the same industry to gain a competitive advantage
  • Immediately increase financial metrics (but take on debt/capital raising)
  • Cost synergies or revenue synergies
  • Increasing market share
  • Alignment with growth strategies

Cash rate cuts and their effect on the banking sector.

  • Rate cuts are be bad for banking sector’s margins, as difference between loan rate and interest rate decreases.
  • Low interest rates stimulate the equity markets in the form of capital inflows
  • Encourages economic activity, incentive to take out larger loans due to lower financing costs

Some simpler questions such as:

Why did you [short/long] the stock?

When answering this question, avoid listing reasons such as “I took a short position on this stock because I think that the price is going to drop” or “I took a long position because this stock has good potential” – try to elaborate more on these points.

You can look back on our stock debate publications for guidance on this type of question.

Why [xxx] %?

For example, if we had a 75% long position and 25% short position on a particular stock, we could say:

  • High confidence in the market for the long-term
  • High growth potential in [xxx] sector
  • Short position to hedge risk in case things go south

Again, you can look back on our stock debate publications for some detailed examples.

Do you think the market over reacted last week (e.g. response to Trump’s tweets) and is expected to revert this week?

For these type of ‘do you think’ questions, there is no right or wrong answer – you just need to justify your responses appropriately.

E.g. we can start off with a creative analogy:

The market is like this pubescent teenager. It goes through prolonged periods of euphoria (i.e. yay we’re getting more interest rate cuts, who cares that the global economy is slowing down, the US-China trade deal will fix everything etc.) and periods of crippling depression (i.e. holy shit growth is actually so bad, US-China will never get things sorted, what happens when interest rates hit 0?).

This type of sentiment is whats causing the V shaped price movements, where the index dips 5% and then slingshots back up – in other words, overreactions in the market followed immediately by sharp rebounds.

Do you think the market will go up or down this week? (e.g. Elections that particular week, political debate about which party will win and the effect on the market)

When answering this question, make sure to bring up some interesting insights of your own to impress markers.

Again, using the US-China trade deal as an example:

  • Focus on key drivers of the market – e.g. the escalation of the US-China trade war and its impact on market sentiment
  • US market is currently having its earnings season, where big companies such as Microsoft, Apple etc. are reporting for the FY – which in turn affects our domestic markets

Students can choose to have a positive or negative opinion on how the market is tracking. E.g:

  • The trade deal is progressing well and is at a good stage. Markets are also near their all-time highs. However, earnings have been sluggish – this may be countered by potential interest rate cuts that will further inflate capital inflows and ultimately push the market past earning woes.
  • The market is overly optimistic at the moment – any good news is met with price overreactions that are bound to be corrected in the short-term

Fill in a table regarding the macro, national, industry and company news of ONE sector.

To help you guys out a bit, I’ve filled out some brief examples for all 3 sectors:

exam edition news table

Good luck to everyone for exams!!!

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