Global markets rebounded overnight as gains in technology and financial sectors helped major indexes recover from their worst selloff in about four months on worries over a coronavirus outbreak and its impact on China and hence the global economy. China has expanded its effort to contain the coronavirus, which has satisfied investors for now. Asian markets remained weak, while Chinese markets remained closed on an extended break.
Travel-related stocks, including airlines, casinos and hotels, have been the worst-hit as Coronavirus impacts are most direct. Both the ASX and NZX were down significantly yesterday, on the back of Coronavirus news, given the heavy reliance of both economies to China as a major trade partner. There is clearly a large amount of uncertainty, and it is very early to tell what the impact of Coronavirus will be on both China and stocks more generally.
Stock in Focus: NZ Refining (NZR:NZX)
NZR shares continue to slide after delivering another weaker operational update, as processing fees for the 2019 year were dragged down by weaker gross refining margins (GRM).
NZR reported $19.2m in processing fees for the November and December 2019 period, this was down -61% from the same corresponding period last year due to lower refinery throughput volumes impacted by the unscheduled Transpower outages and weaker refinery margins. Despite the power outage in November, NZR managed to achieve record throughput volumes for the 2019 year, processing 42.69m barrels of crude oil thanks to the maintenance works done in 2018. Unfortunately, these operational efficiencies are being offset by weaker GRM, with an uncertain outlook.
Given recent events, we maintain our HOLD on the basis that GRM are more likely to remain weak (compared to recent historical levels) offsetting any increase in throughput volumes, and with no certainty on a near-term recovery we do not see any real upside from here given current market confidence remains bleak. Also, we have lost confidence in our view around USD strength (NZD Weakness), with the exchange rate expected to remain rangebound around current levels.
We currently have a HOLD rating in NZR.
Members should look out for a full update on NZR to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market was in the red on Tuesday (ASX 200 Index -1.35%), with the market experiencing its worst day of the year, in what has been a very strong January for the ASX. Not only were travel related stocks hit hard, but the sell-off was quite broad based, and mining stocks such as BHP, Rio Tinto and Fortescue paced losses amid concerns demand for commodities from Australia's largest trading partner could be hurt by a slowdown in China's economy. There is a potential for Chinese authorities to intervene and stimulate the economy if the situation deteriorates.
The New Zealand market continued to sell-off yesterday (-1.03%). As we touched on yesterday, The outbreak of coronavirus continues to weigh on China-related companies, and in particular the tourism/travel sector. Air New Zealand and Tourism Holdings led market losses. Tourism Holdings chief executive Grant Webster said the company has yet to feel any impact of the coronavirus at the operational level. Auckland Airport and SkyCity shares also took a hit.
3 Things Markets Will be Watching this Week
- US Earnings get into full swing with a number of market heavyweights reporting profits.
- Coronavirus Headlines.
- The US Federal Reserve makes an interest rate decison on Thursday
Have a Great Day,
