A Buying Opportunity | Air NZ & Qantas, Kathmandu

22 March 2020

Global markets were in positive territory overnight, with US technology shares leading the rebound in an extremely volatile market.
 
We are in a fast-moving and fluid situation with regards to the impact of corona-virus on financial markets. Containment measures continue to be implemented around the globe, with both Australia and New Zealand enforcing travel bans on non-residents. This is seeing economic activity come to a virtual halt in activity in some sectors, such as travel, which has been hit very hard in the market sell-off.
 
Air NZ’s CEO has suggested a funding deal is expected within the week (as talks remain ongoing with its 52% NZ Government shareholder), while former CEO Rob Fyfe indicated the company is likely burning $450m a moth. Qantas and Virgin have suspended all international services until end-May and end-June respectively. It has been estimated up to A$3.8bn in liquidity may be required for Qantas to survive, but investors are likely to support it as a high-quality business. The outlook is likely bleaker for Virgin.
 
In saying that, it feels like markets may be finding a bottom. Valuation support is likely to see investors return to markets, and the market will turn higher well before the economy, as it is forward looking. We see opportunities to buy stocks on a medium-term  (1 to 3 year) view which are relatively immune to coronavirus, but have been caught up in the market sell-off.
 
In saying that, as we have discussed previously, once markets get comfortable that the growth rate in new cases has slowed there will likely be a strong rally given low interest rates and government stimulus. The Chinese market has recovered and China has shown the world a roadmap to dealing with Corona-virus. While the near-term economic situation appears bleak, this is looking like it will soon be the best buying opportunity since the Global Financial Crisis in 2008.

 

Stock in Focus:  Kathmandu (KMD:NZX / KMD:ASX)

Kathmandu shares tumbled as it highlighted a significant decline in footfall in Australasia, coupled with enforced closure of most European operations. It is far too early to look at buying retail sector investments in our view.
 

We currently have a HOLD rating on KMD.
Members should look out for a full update on KMD to be released in our weekly report

 

   
Australia & New Zealand Market Movers

The Australian market dropped yesterday (ASX 200 index -3.4%) as investors weighed central bank support against the deepening economic disruption triggered by containment measures being introduced around the world. Travel related, retail, and Tech stocks were the hardest hit, while miners and healthcare companies were such as CSL actually higher. The rout on Thursday came despite drastic action from the Reserve Bank of Australia, which cut the official cash rate to a record low of 0.25%, announced a $90 billion discounted loan facility for banks to use to support small business and households and started quantitative easing measures. The RBA is attempting to provide emergency credit via banks to Australian businesses to support them through what is potentially going to be a sharp downturn in the economy.
 

The NZ market sold off again on Thursday (NZX50 +3.6%) with several companies hitting record lows, as investors grappled with the uncertainty of how long and deep the economic downturn will be as the pandemic continues to rattle financial markets. Tourism Holdings hit a 6-year low, SkyCity Entertainment Group fell to the lowest in two decades, and Gentrack sank below a dollar for the first time. On the flipside Fisher & Paykel Healthcare shares remained at highs. A minimum of 5,000 jobs are set to be cut by tourism companies in the short term according to Tourism Industry Aotearoa CEO. Volatility seeped into currency markets as investors flocked to the greenback which saw the kiwi dollar sink, at one point trading at 54 cents against the US dollar.

 

3 Things Markets Will be Watching this Week

  1. ​​​​​​​Coronavirus related news-flow remains key in terms of driving investor sentiment.
  2. ​Moves from central banks globally in response to coronavirus, 
  3. Data from the US including building permits, housing starts and existing home sales. Closer to home, Australia’s latest employment data is due to be released on Thursday along with the latest net migration data in NZ.

Have a Great Day,
 

Team

We are in a fast-moving and fluid situation with regards to the impact of corona-virus on financial markets.

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