Biden’s Tax Plans Hit Sentiment | Tourism Holdings

26 April 2021

Global markets were mixed overnight (S&P 500 index -0.9%) as shares on Wall street started the session higher after both US weekly new jobless claims and continuing claims declined to new post pandemic lows.

However, the market turned sour after Biden announced plans to almost double capital gains tax rates for wealthy Americans.
The proposed capital gains tax will increase from 20%, to 39.6% for those earning over $1m. The tax hike will help fund Biden’s next major fiscal package, the American Families Plan, which is expected to include funding for, amongst other things, childcare, paid family leave, and education and could be worth in the region of $1 trillion ($1.5 trillion including new tax credits). The market didn't react as sharply to the news as it was part of Biden's election campaign and added to earlier plans to raise corporate tax up from 21% to 28% (undoing half of Trump's corporate tax cut in 2018 which was reduhced the 35% rate down to 21%). Regardless this would be a sizeable cost to long-term investors and there could be heavy selling later in the year if this were to become law next year. We have been very surprised at how well the market has digested take hikes in the US so far, which are set to be a significant drag on corporate earnings from 2022. 

Accordingly, growth stocks were hit harder on the news with Tesla down -3.3%, and Amazon falling -1.6%. Southwest Airlines rose +1.1% after reporting smaller than expected quarterly loss, unfortunately American Airlines fell -1.7% despite saying leisure travel bookings continue to rise and that it expects to breakeven or better by June.

European markets (Stoxx 600 index +0.7%) rose after companies reported solid earnings growth, and the European Central Bank left its policy unchanged, lifting investor  sentiment. 

Tourism Holdings Limited (THL:NZX)

Tourism Holdings (THL) shares were up +1.9% yesterday after providing a market update. The RV rental company expects a net loss after tax of between $14m and $18m for the 2021 financial year – comparing favourably to market expectations of ~$21.5m. This was helped by US remaining strong in both rental and sales, NZ sales margins improving and domestic rental demand being supportive, and Australia improving from the first half as state borders remained open. We anticipate THL to be more or less breakeven for the 2022 financial year being supported by the trans tasman bubble (as forward booking orders appear promising), with a return to meaningful profitability once international tourism returns in full swing. 

We continue to remain BUY rated on Tourism Holdings with a high risk caveat, as they have survived the worst of the pandemic very well. THL is one of our preferred reopening plays based on its current valuation providing investors with a more attractive risk reward profile.


Australia & New Zealand Market Movers

The Australian market (ASX 200 index +0.8%) was higher yesterday snapping up a two-day run of losses, with most sectors trading higher barring energy and utilities – helped by a strong led from Wall st which also ended its two-day descend.

Healthcare stocks did most of the heavy lifting, Ramsay Health Care lifted +1.9%, CSL was up +1.8% continuing its recent run and Cochlear added +1.2%. Tech stocks were also stronger, Megaport being the highest gainer of the day following its first quarter result showing that it was on track to reach its revenue targets. Lynas extended its downward run to three day in a row following its reasonably solid quarter result which failed to meet heightened expectations. 

The New Zealand market (NZX 50 index +0.3%) was up slightly on Thursday, like the Australian market ending its two-day fall following Wall street's lead. Fisher and Paykel Healthcare (FPH) lead the market higher up +4.2%, as a benefactor of the covid-19 pandemic which does not show any signs of slowing down any time soon. 

On the flip side A2 Milk, the earlier benefactor of the pandemic dropped another -1%, after another broker slashed its price target on the milk marketing company – warning for a possible fourth earnings downgrade. 

3 Things Markets will be Watching this Week

  1. Corporate earnings season gets into full swing this week with around 80 S&P500 companies reporting, including Netflix, IBM and American Airlines. 
  2. Highlights globally include the ECB’s latest interest rate call.
  3. In Australia, Wesfarmers will host an Investor Briefing while a number of quarterly updates are due including BHP, Northern Star, Challenger, Sydney Airport, Oz Minerals, AMP, Evolution Mining, Santos, Brambles and Woodside.


However, the market turned sour after Biden announced plans to almost double capital gains tax rates for wealthy Americans.

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