We hope you had a good Easter break. Global markets were hit hard once again overnight. The US market re-opened lower with losses being led by the Technology sector which has wiped out its early 2018 gains and is now flat for the year.
The Chinese government hit back Monday at President Donald Trump's tariffs on steel and aluminium by acting on a threat to put tariffs as high as 25% on imports of 128 US-made products, including pork and seamless steel pipes. The Chinese Ministry of Commerce indicated that the tariffs were intended to pressure the Trump administration to back down from a simmering trade war. We note that products such as pork, wine and other agricultural imports, strike at America's rural heartland that is seen as a political base for Mr Trump. An all-out trade war is clearly a key uncertainty and risk for markets.
At the same time, investor nerves frayed with President Donald Trump's continuing assault on Amazon, extending Tech sector losses triggered by Facebook's recent user data scandal. Once again, we reiterate it is important for investors to remain calm during period of heightened volatility.
Stock in Focus: Scales Corporation (SCL:NZ)
One stock which has held up well during the recent market volatility has been agribusiness Scales (SCL).
In terms of recent news flow, SCL shares were little changed after posting a -15% drop in underlying net profit after tax, due to costs from excess rainfall and heavy winds from Cyclone Cook. Operating earnings still hit the top end of management guidance of $55 to $62m, with strong performance from the Storage & Logistics business offsetting some of the losses.
While agribusinesses do come with associated risks – such as impacts from weather, believes Scales, who managed to deliver a sound result despite difficult trading conditions, still offers an attractive opportunity to gain exposure to global agricultural trends.
We currently have a BUY rating on Scales.
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Australia & New Zealand Market Movers
The Australian share market was lower last Thursday (ASX 200 index -0.52%) as ASX shares wrapped up their worst March quarter performance since the GFC on a suitably sour note despite a modest rebound in the major banks. The S&P/ASX 200 index lost % for the quarter, and investors have only suffered two worse March quarters over the past 25 years – a 15% plunge in 2008 and a 6.3% loss in 1994.
The New Zealand market sold off last Thursday (NZX 50 index -0.82%) on the last day of the quarter, led lower by A2 Milk on continued selling from increased competition and further weakening from Fletcher Building. Pressure remained on A2 after it was first reported last week that Nestle has started selling an A2-branded infant formula in China. Fletcher Building fell after it said it has gained a two-month extension to waivers from its US noteholders and bank syndicate that were granted after it breached lending covenants, suggesting the company wasn't able to negotiate new terms by its March 31 deadline.
3 Things Markets Will be Watching this Week
1. Global politics remain in focus with tensions rising between the US and China as they impose trade tariffs on each other.
2. The Reserve Bank of Australia makes an interest rate decision on Tuesday.
3. Monthly US employment figures are released at the end of the week
Have a Great Day,
Team