Global markets were little changed overnight as declines in industrial companies dampened early optimism over easing trade tensions and the prospect of an interest rate cut by the Federal Reserve.
Closer to home, the Australian share market hit a new 11-year high, with the local market making strong gains following what was a surprise pro-market election result last month.
Stock in Focus: Woolworths (WOW:ASX)
American bulk retailer Costco has announced it is coming to NZ, as the worlds second largest retailer continues to expand its presence. The operating environment for Woolworths is fiercely competitive across Australasia, with low-price competition like Costco, Aldi, Amazon and the near-term-arrival of Kaufland. This has kept us negative on Woolworths for some time.
WOW did deliver a recent strong third quarter sales result, as the business made a turnaround after a difficult first half of the 2019 financial year. Woolworths reported group sales of $14.9 billion for the third quarter of 2019, up +5.1% from last year with top line sales and same store sales growth experienced across all continuing operations. While WOW has done well to improve its business by revitalising their stores and growing sales, eventually we believe WOW will succumb to greater industry pressure.
We believe the market may have become too optimistic and overvalued the company with low growth potential in our opinion and many headwinds on the horizon.
We currently have a SELL recommendation on WOW.
Australia & New Zealand Market Movers
The Australian share market surged yesterday (ASX 200 index +1.59%) hitting a fresh high. The major banks & healthcare stocks such as CSL & ResMed were among the market leaders on Tuesday, while the iron ore miners were also stronger as the price of the bulk firmed above $US100 a tonne.
In stock news, Vocus Group jumped after AGL Energy made a $3.1 billion bid for the telecommunications company, just a week after takeover talks with Swedish private equity firm EQT collapsed. Star Entertainment Group declined sharply after warning its profits would be hit by softer economic conditions. The company said turnover in its international VIP business, which relies on free-spending Asian gamblers, plummeted 31% between January 1 and June 8.
The New Zealand market rallied yesterday (NZX 50 index +1.11%) as Kiwi shares followed Australian stocks higher as traders across the Tasman returned from a long weekend more optimistic after the US administration made trade-friendly noises in recent days. Exporter A2 Milk led the local market higher. Chorus shares rose as the Commerce Commission said the network operator's backhaul services don't currently need heavier regulation. It said upcoming reviews might bring some of those services under a new regulated pricing framework.
3 Things Markets Will be Watching this Week
- Trade War headlines are likely to remain drivers of investor sentiment.
- Closely watched US inflation data will be released on Thursday.
- The latest monthly Chinese economic updates are published on Monday.
Have a Great Day,