Global markets were higher overnight as shares on Wall Street gained led by marquee technology stocks hitting record highs and a rebound in industrials, as optimism of a strong earnings season offset fears about a US-China trade war.
Helping the tech sector is the view that those companies may be more immune to problems from ongoing trade disputes. On the trade war, China is yet to react to the latest round of US imposed tariffs and it is unlikely China will be able to match the full scope of tariffs levelled against the by the United States. In saying that, there may be other ways they can respond and it has been suggested now that China will directly target US firms operating within China.
Stock in Focus: A2 Milk (:NZ / A2M:AX)
A2 Milk was the worst performer on the NZX yesterday as its shares fell on the back of a trading update which failed to impress against the market’s high expectations.
A2 said it lifted annual sales 68%, just beating the guidance given in May, and said it expects to maintain an earnings margin of about 30% in the coming year even with increased spending. The company announced group revenue for the 2018 financial year totalled $NZ922m. While the numbers look solid on face value, once again the market was not impressed and the share price was lower.
It is encouraging that guidance was beaten in terms of sales, although it appears that margins were a touch below what the market was anticipating. A2 is adding more cost into the business in seeking to grow through mother-and-baby store chains in China which is a lot more cost-intensive than selling through daigou, and global liquid milk market in America.
We currently have a HOLD rating on A2.
Members should look out for a full update report on A2 Milk to be released in next week’s weekly report.
Australia & New Zealand Market Movers
The Australian share market was higher (ASX 200 index +0.85%) as most of the market rallied strongly yesterday, apart from the mining sector. An overnight commodity plunge that saw Brent crude prices record their biggest fall in two years weighed on oil and mining stocks. CSL led the market on Thursday as it broke above $200 for the first time ever as a report from a major broker highlighted that they expected a positive earnings season for the healthcare giant. In other news, AMP has lifted variable mortgage rates for both owner occupiers and investors, following rival lenders in a move that could put further pressure on the housing market.
The New Zealand market was a touch lower once again on Thursday (NZX 50 index -0.18%) with weakness in A2 Milk and Sky Network Television, while Kathmandu Holdings hit a four-and-a-half year high. Continued weakness in the NZ dollar against the greenback has seen buying support for exporters. The best performer on the index yesterday was Kathmandu which hit its highest closing price since December 2014 as it continues to make gains following a well-received trading update in June.
3 Things Markets Will be Watching this Week
1. Tit for tat tariffs, particularly as retaliatory measures between the US and China continue to sway investor sentiment.
2. A number of US Federal Reserve members make speeches late in the week.
3. Closely watched US inflation data is released at the end of the week.
Have a Great Day,
Team