Global markets rebounded overnight as Wall Street shares found some upward momentum midway through the trading session.
Volatility has returned to markets in a big way, and the S&P 500 (US market index) has tumbled in seven of the 10 past days, and plunged into a correction (loosely defined as a 10% drop) faster than any time since 1950. The key question is whether this is just a simple correction or the start of a bear market, and market commentators appear split in their views. We are watching developments closely.
Once again, for the week ahead, all eyes will be on monthly US inflation data which will be released Thursday morning (AU/NZ time). Inflation in the US is seen to the trigger for the market sell-off, as higher inflation numbers will lead to rising interest rates (which is negative for share markets). We believe it is important for investors to remain calm during periods of heightened volatility, and there are likely to be buying opportunities thrown up once the market settles.
Stock in Focus: Next DC (NXT:AX)
During the recent market turmoil shares of data centre company Next DC have held up well. NEXTDC has been a strong performer which has seen it become a favoured ASX growth stock amongst analysts and brokers.
Takeover rumours in recent weeks sent the shares up to fresh record highs, as it was reported US private equity firm Blackstone is interested in buying NXT to gain exposure to the data sector. The recent takeover speculation reaffirms our view that there are solid tailwinds behind NXT’s business and the explosion of data is a powerful multi-year investment theme.
The buyout of APDC (the property trust which owns the property at which NXT has its data centres) continues to be in the news, and NEXT DC have said they intend to reject the sale offer on the grounds that the sale price proposed is unjustified.
We currently have a BUY rating on NXT.
Australia & New Zealand Market Movers
The Australian share started the week lower (ASX 200 index -0.3%) dragged down by losses in the banks as a probe into the financial services sector got underway and as investors weighed up more corporate earnings. Bendigo and Adelaide Bank dropped after its half-year cash earnings rose 10.7% to $225.3 million but missed analyst forecasts for a profit of $236 million. Other companies reporting earnings included JB Hi-Fi, which ended the day down 8% after the electronics retailer reported a jump in profit but disappointed with its guidance.
The New Zealand market continued to retrace on Monday (NZX 50 index -0.41%) led by Kathmandu Holdings and Fisher & Paykel Healthcare, while NZX gained. In stock news, the market was expecting an announcement from Fletcher Building around increasing the losses at its building and interiors (construction) unit. The company was set to come out of the trading halt it was placed in last week at $7.77, but instead has extended the halt until Wednesday, saying it has yet to complete a review of key projects and has begun talks with lenders about breaching covenants.
3 Things Markets Will be Watching this Week
1. Local AU/NZ company profts as the earnings season continues.
2. US earnings season moves into its latter stages.
3. Closely watched US inflation data will be released Thursday morning (AU/NZ time).
Have a Great Day,
Team