Global markets were lower overnight as a sharp selloff in technology stocks dragged down the Nasdaq, with North Korea’s latest warnings to Washington adding to the downbeat mood. This week also sees a number of US Fed officials make speeches, with New York Fed president William Dudley's comments overnight consistent with another rate hike in December.
For those interested, we will be publishing the first in a 3-part series of educational articles on selling later today in the members area of our website.
Markets generally appear to be comfortable with the election results in both Germany and New Zealand. European shares rose slightly on Monday after German Chancellor Angela Merkel secured a fourth term but saw her party weakened by a surge in support for the far-right.
Stock in Focus: Fonterra (FSF.NZ / FSF.AX)
Shares in Fonterra Shareholders Fund (FSF) were up +1.6% yesterday as the company released its full year profit result.
The result was mixed, as gross margins dropped about 4 percentage points as the dairy company paid more for milk, while rising prices offset a decline in volumes. The changing mix didn't alter Fonterra's forecast payout. Sales rose to $19.2 billion from $17.2 billion while cost of sales climbed to about $16 billion from $13.6 billion. The full-year results gave Fonterra room to answer some critics about its offshore strategy, including its investment in Beingmate Baby & Child Food which Fonterra has written down – an unprofitable Chinese infant formula producer and distributor that sells Fonterra's Anmum formula in China.
Fonterra has also confirmed it has made a takeover bid for troubled competitor Murray Goulburn, Australia's largest dairy processor. Fonterra, which is already attracting dairy farmers away from Murray Goulburn and rapidly increasing its Australian milk supply, confirmed it had thrown its hat into the ring as a buyer. As we touched on last week, Murray Goulbourn (MG Unit Trust) shares jumped as it said there were several takeover proposals for the group on the table.
We have held a positive view on FSF as a medium-term exposure to the “dining boom” investment thematic, particularly given forecast global demand for high quality dairy.
We are currently BUY rated on FSF.
Members should look out for a full update to be released on FSF in our weekly report.
Australia & New Zealand Market Movers
The Australian share market was more or less flat yesterday (ASX 200 index +0.03%) as early buying across the Big Banks waned, and CBA continued to underperform the other banks given the legal issues it is facing. The Big Banks also announced over the weekend that they will remove fees, which is not expected to have a material impact on earnings.
The New Zealand market made gains on Monday (NZX 50 index +0.70%) in quiet trading following the general election as investors await the formation of a government, led by A2 Milk Co and SkyCity Entertainment Group. Overall the market did not seem overly surprised by the election result, and there will likely be a holding pattern until a government is formed. In other news, Z Energy announced the first parcel of jet fuel will be pumped to Auckland International Airport later today now the refinery to Auckland pipeline is back up and running and it does not expect to change its full-year guidance after the disruption.
3 Things Markets Will be Watching this Week
1. The Reserve Bank of New Zealand makes an interest rate decision on Thursday.
2. The Geopolitical situation as tensions between the US and North Korea remain very high.
3. NZ politics and negotiations as a coalition government is formed, as well as the outcome from the German election.
Have a Great Day,
Team