MARKETS SPECTATOR: NAB's time to shine

A property purchase lit a fire under the market today, planets may be aligning for NAB investors and the S&P reshuffled its indices.

Yesterday I wrote that I thought the market looked a little over extended on a short-term basis and that it needed a period of consolidation or pullback. Well, that has been blown out of the water today thanks to a regional portfolio buy order that has lit a fire under the property trust sector and boosted the industrial and financial sectors, too. Although, the horrible amount of volume in the market has definitely exaggerated the upside effect.

Nonetheless, it’s quite an interesting move, especially ahead of the important non-farm payrolls data due out in the US tonight. Normally, the Australian market is reasonably subdued ahead of this important release but it seems like its already factoring in a continuation of the recent improvement in the figures. If the data is weaker than expected, there could be some disappointment come Monday.

All in all though, it’s been another strong week of price action for the local bourse, rising for the third straight week. Bar some selling pressure tonight, it looks like there will be an assault on the 2011 highs of 4581.8 next week.

Given the strength of the recent rally, we would expect to see some sort of selling pressure around that level, although who knows whether it will result in a one day or one week consolidation.

Surely it’s NAB’s time to shine

You don’t have to look too hard to find an article about NAB’s underperformance versus all of its peers. The chart below shows just how bad things are for NAB, on a relative basis. They have underperformed ANZ, which is the worst of the big three, by more than 17 per cent over the last year.

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Source: Iress

The underperformance has been a hot topic of late, especially for long suffering shareholders. However, don’t feel too bad for them as they’re being paid a pretty handsome dividend for their patience.

In fact, NAB is currently paying a dividend of around 7.55 per cent fully franked, which is well over 11 per cent if you gross it up. Now that is a hell of a return for a big four bank stock. It’s also the reason why I don’t think NAB’s underperformance will continue for too much longer.

With the remainder of the big four performing very strongly, especially CBA, I don’t think we are far away before we start seeing rotation out of them and towards NAB. Put simply, I think the yield is going to be too hard to ignore, even given the problems NAB has with its UK business.

There has been a lot of pressure from NAB shareholders calling for board level change, too. So there is also the potential extra catalyst of a material change in strategy, which would boost the share price markedly in my opinion.

Names to watch in the S&P December quarterly rebalance

On a quarterly basis, S&P conducts a rebalancing of major indices, including the S&P/ASX indices. After the close of trade December 21 there will be a number of stocks being added to or removed from the major indices.

Frequently, there will be a stock, if not a couple, that undergo a significant price move due to rebalance as index tracking funds either buy or sell the stock ahead of the change.

Below are the major changes.

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