Global markets were higher overnight, as the US market (S&P 500) jumped +4.2% after Congress authorised nearly $8 billion for virus prevention with speculation other banks and governments would follow suit and a surprise US presidential primary result. With Joe Biden winning the majority of state primaries it spurred investor confidence as he is a more conservative candidate to face Donald Trump in the upcoming election.
Elsewhere, the Bank of Canada cut interest rates by 50 basis points amidst speculation other major banks would take similar action, while South Korea announced a 11.7 trillion won ($15 billion) stimulus package to support its economy.
It appears market volatility is not expected to abate any time soon, with uncertainty surrounding the efficacy of containment efforts given the virus continues to spread. With more cases being reported it is difficult to determine what impact such efforts may have on economic activity and, therefore company earnings.
Stock in Focus: G8 Education (GEM:ASX)
Australian Childcare operator G8 Education shares have been under heavy pressure since releasing their 2019 full year results.
The main concern being guidance as management advised that there has been significant instability in the market in 2020 due to events such as bushfires and the coronavirus, which will have flowed through impact to the group’s occupancy, with year‐to‐date like‐for‐like occupancy slightly behind the prior year.
For the 12 months ended December 31, G8 Education reported a 7.2% increase in revenue to $920.1 million, which was primarily attributable to improved occupancy, acquisition performance, and fee growth. Unfortunately on the bottom line, G8 Education posted a 3.9% decline in underlying net profit after tax to $76.4 million, due to its operating expenses growing quicker than revenue as they ramped up investment in quality to its greenfield portfolio.
We currently have a BUY (High-Risk) rating on G8 Education
Members should look out for a full update on GEM to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market (ASX200) dropped -1.7% on Wednesday as the banks continued to slide lower given the prospects of an even lower interest rate environment. Tech stocks and travel sector were both hit heavily again due to prospects of weaker economic activity.
On the flipslide, gold miners rallied strongly due to a jump in gold prices and Datacentre Next DC broke out into new all-time highs. CSL says they are ramping up supply of this year's flu vaccine to ensure it meets demand after the federal government announced it has placed its biggest order to combat the coronavirus.
The NZ market managed to edge higher yesterday (NZX50 up +0.6%) as low interest rates supported demand for NZ equities that offer a reliable dividends. Fisher and Paykel Healthcare (+2.5%) and A2 Milk +2.1%) also climbed higher offsetting losses across most of the market, again predominantly across the travel and tourism sector.
Heartland bank announced it will be re-entering the home loan market with a 2.89% 1 year home-loan available through its online home loan platform for customers with a 20% deposit or equity and plan to live in the property. Air NZ announced it will be making further cuts to domestic, trans Tasman and Asian services to curb weaker demand caused by the coronavirus.
3 Things Markets Will be Watching this Week
- Coronavirus news flow will continue to dominate investors’ attention in the week ahead.
- The Reserve Bank of Australia meets on Tuesday amidst increasing expectations they will take the opportunity to cut rates.
- Closely watched US economic data is released at the end of the week.
Have a Great Day,