Global markets were relatively flat overnight in quiet trading given US markets were closed for Martin Luther King day.
For the US market it has been a rip-roaring +4.2% start to 2018, the best start to the year since 1964, while the Australian market is slightly higher (+0.2%). At the same time, the NZ market is down -2.2% year to date, however we would place this in context of a market which has just experienced a +22% year. There has likely been some profit-taking in NZ and some commentators also point out that the recent spike in the NZ dollar makes it more likely offshore funds will also be taking profits.
In our year ahead report published yesterday we outlined that given the starting point, we would be very surprised to see anywhere near a +22% return repeated for the NZX in 2018 and we expect the ASX to outperform the NZX. The overall NZ market is expensive in terms of valuations and the NZ market is sensitive to rising interest rates.
We would caveat our comments above by saying that as always, we still see opportunities on the NZX (although we are cautious around the level of the market as a whole). Stock Pickers should become more selective as the Bull Market ages and we continue to focus investing in stocks with thematic tailwinds and solid fundamentals behind them.
Stock in Focus: Tourism Holdings (THL:NZ)
THL shares have continued their solid run of late, recently becoming our best performing NZ portfolio stock as a beneficiary of our tourism boom investment theme.
In terms of recent news, in the last quarter of 2017 Chinese based Citi Capital boosted its stake in Tourism Holding to almost 11% emerging as a substantial shareholder. THL shares then jumped higher in December as the company said that In light of the new US tax legislation passed by the Republicans they expect to receive a boost in net profits of about $2.3m-$3m per annum based on current level of earnings.
Since the start of the year, THL shares have pulled back slightly as some profit taking is to be expected. Further, the NZD moving above 72 US cents this year is a negative for THL.
We are currently BUY rated on THL.
Members should look out for our full update on THL to be released in Wednesday’s weekly report.
Australia & New Zealand Market Movers
The Australian share market posted a mild advance on Monday (ASX 200 index +0.12%) as gains in the gold mining sector helped the market shrug off weakness for energy companies. The moves for the gold sector came as the precious metal hit a four-month high on Friday as the US dollar index hovered at around three-year lows.
The New Zealand market continued to retrace on Monday (NZX 50 index -0.38%) as shares fell in light volume as holiday trading continued, with Pushpay Holdings and Fonterra Shareholders Fund leading the losses. The market appears to be in a bit of a holding pattern at the start of the year, and there appears to be profit taking across a lot of the winners in 2017.
3 Things Markets Will be Watching this Week
1. We head into the US earnings season – with a particular focus on company comments around the impact of US tax cuts
2. Australian employment data is released on Thursday.
3. Chinese growth (GDP) figures are also released Thursday.
Have a Great Day,
Team