Global markets were mixed overnight, with Wall Street moving higher in a broad rally as technology shares recovered.
Both the Australian and NZ dollar have trended lower of late, and several market commentators suggest there is more to come. Morgan Stanley have suggested that investors position for further currency falls, with a forecast for the AUD to hit 65 cents against the USD by 2019 (compared to 75 cents currently).
Those who have followed us will know we have been US dollar bulls for some time now, primarily on the back of US interest rates moving higher, and the massive unwind of stimulatory measures used to help support the economy during the global financial crisis. We would point out that assuming the US Federal Reserve hikes the Fed Funds rate next week, the Fed rate will now be at the same level as the RBA cash rate. This is key to our forecast for a higher US dollar and lower AUD & NZD (all else equal a higher interest rate drives demand for a currency and results in currency strength).
Given our currency view, one of our core investment themes remains investing in stocks which will benefit from a lower currency. These include offshore earners, exporters and stocks in currency sensitive sectors such as Tourism.
Stock in Focus: Scales Corp (SCL:NZ)
One such company is agribusiness SCL, which has powered to record highs after a guidance update. SCL said it now expects full-year earnings to be at the upper end of guidance between $55 million and $62 million on the performance of its horticulture division and new acquisitions.
This was clearly well received by the market, and SCL management have continued to have a track record of under-promising and over-delivering. While Agri-businesses such as SCL do come with associated risks such as impacts from weather, commodity prices, and currency moves, we have seen it as an attractive way to play global agriculture trends.
We currently have a BUY rating on SCL.
Members should look out for a full update on SCL to be released in our weekly report
Australia & New Zealand Market Movers
The Australian share market pulled higher on Thursday (ASX 200 index +0.54%) with gains in the banking sector helping the benchmark to its first positive session in four days. The Aussie dollar fell with traders selling out of the currency immediately after the release of disappointing October trade data. A handful of companies updated their investors on corporate developments, with Nufarm falling 1% after it warned its half-year earnings would suffer from weak November trade and a temporary maintenance shutdown of its Victorian facility.
The New Zealand market rallied yesterday (NZX 50 index +0.51%) led higher by Fletcher Building and Spark New Zealand, while A2 Milk Co and Kathmandu Holdings weakened. In stock news, A2 Milk said it has settled a court case in Australia with its rival Lion Group. Lion had brought a case against A2 over the science behind health-related claims about the milk, with A2 countersuing over its milk brand's use of A2 protein claims, seeking an injunction and damages. Both companies have agreed not to pursue their claims and have come to a confidential settlement.
3 Things Markets Will be Watching this Week
1. The Reserve Bank of Australia makes its last interest rate decision of the year on Tuesday.
2. Australian GDP data for the 3rd quarter is released on Wednesday.
3. Closely monitored monthly US employment data is published at the end of the week.
Have a Great Day,
Team