Global markets were generally lower overnight as early gains tracking a rally in the Chinese market faded with oil and financial stocks pushing the major US indexes lower.
October continues to live up to its reputation for being a volatility-laden month, with stocks again failing to sustain early-week gains last week as investors mostly shrugged off a strong start to third-quarter corporate earnings season in the US. As we touched on last week, markets generally shift their attention back to company fundamentals during reporting season and investors are seeking ever greater reassurance from quarterly reports on the outlook for corporate profits.
Chinese shares rebounded yesterday, with the Shanghai Composite up +4%, leading gains across Asia. The Chinese market has been in a sustained corrections for some time now, and we think there are likely to be value opportunities once the dust settles.
Stock in Focus: METRO PERFORMANCE GLASS (MPG:NZ / MPP:AX)
Shares in Metro Performance Glass (MPG) have been consolidating over the last few months, after announcing 2019 earnings are expected to be on the lower end of previous guidance.
The downgrade was on the back of a weaker outlook for their Australian business. The Australian business is struggling due to gaps in organisational capability, and large cost inefficacies from their new Australian plant. MPG have appointed a new CEO Simon Mander, who will be joining in January 2019 who has experience in the New Zealand and Australian building products and manufacturing sectors which appears promising. MPG are shifting their goal from expansion and diversification to optimisation and enhancement of internal capability.
While not without risk, we believe there is potential for a turnaround, particularly given new management and given the amount of negativity which is currently being reflected in the share price.
We currently have a BUY (High-Risk) recommendation on MPG.
Australia & New Zealand Market Movers
The Australian share market started the week lower (ASX 200 index -0.58%) as banks and industrials dragged the Australian sharemarket into the red as the Federal Government faced a hung parliament. Commonwealth Bank was one of the biggest drags on the market as ASIC released an update on an independent report from EY into CBA's fees-for-no-service scandal. EY noted that the bank could make improvements to address the low level of control awareness within the business. Flight Centre shares fell sharply after it released a trading update – saying it is expecting an underlying profit before tax between $390 million and $420 million, which is below what the market expected.
The New Zealand market was closed on Monday for a public holiday. NZ shares led losses across Asia on Friday (NZX 50 index -1.22%) as Z Energy led the market lower for another day after the transport fuels company reported lower petrol volumes as oil prices rise. At the same time, Z Energy is facing increased competition from low-cost operators such as Waitomo and has the government threatening regulatory intervention.
3 Things Markets Will be Watching this Week
- US corporate earnings season for the 3rd quarter gets into full-swing with reports from Microsoft, Amazon and Alphabet due this week.
- Trade related news-flow is likely to continue to feature in headlines.
- The European Central Bank (ECB) makes an interest rate decision on Thursday & US GDP data is published at the end of the week.
Have a Great Day