Global markets were lower overnight, with US Markets (S&P 500 Index -1.2%) down as Russia-Ukraine conflict and geopolitical tensions caused Brent crude oil to advance more than +5% to $121/barrel – after Putin demanded “unfriendly countries” pay for Russian oil and gas in Russian Roubles. In other commodities, Nickel’s wild run continued, surging by the 15% daily limit on the London Metals Exchange, the first day of gains since the market reopened just over a week ago, while zinc, copper and aluminium also made solid gain
Energy stocks were the only sector to make a sizeable gain while all other sectors traded lower as markets grapple with the current situation and investors took a risk-off approach. Following a strong session on Tuesday investors are juggling between using stocks as an inflation hedge and the implications high inflation and rising interest rates will have on the economy.
In stock news, Adobe dived -9.9% after it issued disappointing guidance and warned of a hit to its Ukraine digital media business.
Fisher & Paykel Healthcare (FPH:NZX/FPH:ASX)
Fisher and Paykel healthcare slumped -7.8% yesterday, after stating revenue for the 2022 financial year would be in the range of $1.675 billion to $1.7 billion, coming in softer than what the market had anticipated given elevated covid cases, as milder cases are requiring lower respiratory intervention. FPH also adding that elevated freight costs will impact margins and hurt earnings outlook over the medium-term.
The revenue and earnings outlook over the near to medium term looks challenging as expected as covid related demand wanes off. Investors are trying to identify a new post covid base where Fisher and Paykel will recommence its more modest pre-covid level of growth of around ~10% per annum.
We still believe Fisher and Paykel is a top quality stock, but the stock is likely to remain volatile over the near to medium term and despite the fall is still trading at a traditionally rich valuation multiple (~46x 2023 earnings). At the current juncture we believe patient long-term investors could start averaging in their position over the medium-term. We remain BUY rated but with a caveat that it is suitable for long-term investors who can look through medium-term weakness and uncertainty post pandemic. .
Australia & New Zealand Market Movers
The Australian market was up yesterday (ASX200 index, +0.5%) reaching a fresh two-month high following a strong lead from Wall street.
Tech and financial shares lead gain, with all sectors trading higher except for Materials as covid cases in China weigh down on iron ore prices. Beaten down tech stocks continue their recent recovery rally, while financials benefit from rising interest rates.
Uniti Group shares jumped +10.7% following news Macquarie’s asset management arm in conjunction with a Canadian pension manager made a $5 per share takeover bid.
The New Zealand market was down on Wednesday (NZX 50 index, up -1.2%) weighed down by the NZX’s largest stock Fisher and Paykel Healthcare dragging the market lower.
Kathmandu Brands fell -0.8% after reporting a -$5.5m net loss for their 2022 half year result plagued by store closures across its global network and supply chain issues elevated costs weakening margins.
The remainder of the market was also a bit weaker giving back some of its recent gains, despite covid restrictions easing and an announcement that vaccine mandates would be scrapped.
3 Things Markets will be Watching this Week
- Geopolitical risks remain extremely elevated with the Russia/Ukraine conflict.
- Highlights this week include CPI inflation data in the UK.
- Locally, earnings from Kathmandu and The Warehouse, Z Energy holding its Scheme meeting to vote on Ampol’s takeover offer.