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Week Commencing July 28, 2014

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This week we look at the following topics:•Outlook on ASX companies•Prospects for top 10 ASX stocks•6 stocks selected and reviewed

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Over the past few weeks we have touched on commodities, currencies and global indices. We have covered all of the major markets and given our view of where we think each is heading. Our focus this week will be to dig through our own backyard – the Australian stock market.

Some of you have become clients of Invast or joined the trial of this report with a keen interest in Australian stocks. Invast has a great share trading platform and we would encourage you to speak to private client team after reading this content. When it comes to stockbroking, price is important but so too is reliability. Having a platform which doesn’t crash, performs well, is easy to use and customisable are all important points to consider together with a good body of research – which we aim to publish through this flagship report, out to you every week.

As we write this week’s report, the Australian stock market (as measured by the ASX200 index) is finally starting to break out of the 5300-5550 range. It’s very important to understand what drives the ASX200 index before we start talking about individual stocks. Those of you who have been reading this publication for a while now will know that our way of thinking around indices like the ASX200 is very much focused on the composition. What we mean by this is that the ASX200 index represents the 200 largest businesses listed on the Australian market, but they are calculated and measured based on size. Not all of the 200 companies have equal weighting in the index. To the contrary, the top 10 stocks in Australia make up around 55% of the total index value. Which means every stock from the 11th largest to the 200th largest combined only represent around 45% of the market.

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In a nutshell, 55% of the discussion around where the ASX200 goes is purely based on the top 10 stocks on the market. Let us illustrate what this means by showing you the following tables.

The table to the left shows the composition of the ASX200 index. Commonwealth Bank alone represents almost 10% of the market. The big four banks – Commonwealth Bank, Westpac, ANZ and National Australia Bank are four of the five largest companies on the ASX200 and together they represent 30.1% of the market. One third of the Australian market is purely made up of the big four Australian banks. Let that sink in! If you want to form a view on where the ASX200 is going, the easiest and quickest way is to form a view on the banks.

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Our view on the overall ASX200 is this: If we see copper continuing to do well and BHP with a 4 in front of it, there is the very real prospect of the ASX200 breaking out of the 5300-5550 range and moving higher towards 6000. It seems like we are in the very early stages of this move. There will be resistance at around the 5800 level or thereabouts but a mining led boom cannot be ignored and will have a huge impact on sentiment in Australia.

The Australian market is seen as a trade on commodities and China. Should sentiment change in those two areas, the flood of capital into the Australian market form international fund managers will be profound. The big four banks are ok for now because interest rates are unlikely to rise. Commonwealth Bank of Australia cut its five year fixed home loan rate last week to below 5% for the first time ever. Eventually the Australian banks will have their day of reckoning but we don’t think that will happen in the immediate term. There is too much upside from a possible turnaround in commodity prices to start worrying about the financial system. Always handy though to keep this in the back of your mind if you are trading the ASX200 index.

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In our Invast Insights report published in late March, we wrote about six small Australian listed companies which we thought should be considered as part of a watch list. We ran a scan on companies that broadly fell within a market capitalisation range of about $20-$150m and that had no exposure to mining or energy related investment. If you missed that report, you can read it by clicking here.

Below is an update and our comments for each of the six stocks. Note we have removed Clove Corporation from our list and replaced it with emerging financial services software provider Decimal.

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The above is a brief snapshot of where we think the Australian stock market is currently positioned. The top 10 names are the most statistically significant and the other list of six small cap stocks are among the most exciting given their ability to potentially grow in size, assuming the tick all the right boxes and deliver on market expectations.

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Spend a bit of time going through each and getting to know them. As we said at the beginning of this report, Invast has a very solid share trading platform and there is a wealth of factual information on the platform which will help you get to know these companies even better. One of the best features of the platform is the Morningstar data which feeds through – this provides insights into all types of financial performance and historical information that allows you to analyse the stocks quickly and efficiently. If you have certain stocks that weren’t covered in this week’s outlook guide, make sure you register for this week’s webinar and ask your questions. Details are below:

Join the webinar to discuss these points

A kindly reminder. Global markets are at all-time record highs yet some analysts are predicting a large potential fall. So what is install for the rest of 2014? Join Peter Esho, regular on CNBC, Bloomberg and host of ‘Your Money Your Call’, as he outlines his views on: The global markets for the new financial year;Where he sees the commodity, currency and stock markets heading; andWhich ASX stocks are primed to do well over the next twelve months?

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Peter’s webinar will cover both the fundamental and technical outlook going forward plus the key drivers to look out for and is expected to fill fast. Q&A will be open straight after the webinar. Register now by clicking the image below.

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Go to www.invast.com.au/insights to get a complimentary 4 week trial and receive the latest insights as they are published to our live clients.

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DisclaimerPlease note that you are receiving this report complimentary from Invast Financial Services Pty Ltd (AFSL 438 283). Invast staff members may from time to time purchase securities which are included in this or future reports. The authors of this report may or may not be holding a position in the securities mentioned. Please note that the information contained in this report and Invast's website is of a general nature only, and does not take into account your personal circumstances, financial situation or needs. You are strongly recommended to seek professional advice before opening an account with us.

General Disclaimer: This newsletter contains confidential information and is intended only for the person who downloaded it. You should not disseminate, distribute or copy this newsletter. Invast does not accept liability for any errors or omissions in the contents of this newsletter which arise as a result of downloading this newsletter. This newsletter is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any financial product. Invast Financial Services Pty Ltd is regulated by ASIC (AFSL 438 283 | ABN 48 162 400 035).

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Risk Warning: It's important for you to read and consider the relevant Product Disclosure Statement, and any other relevant Invast Financial Services Pty Ltd documents before you decide whether or not to acquire any financial products listed in this email. Our Financial Services Guide contains details of our fees and charges. All these documents are available here on our website, or you can call us on +612 8036 7555. CFDs and Foreign Exchange are leveraged products and carry a high level of risk and you can lose more than your initial deposit so you should ensure CFD and Foreign Exchange trading meets your personal circumstances.

General Advice Warning: Being general advice, this newsletter does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

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