Global markets continued to retrace overnight, with the US Tech Nasdaq index experiencing sharp declines as internet stocks faltered for a second day.
Australian stocks suffered their biggest one-day fall since March, falling victim to a sell-off that swept across Asian markets with the ASX falling to a 2-month low. Investors are questioning how much further stocks can run as the trade spat between economic superpowers China and the US heats up, and as a market rout and instability in Turkey and Argentina heightens concerns about which emerging market could be next to tumble.
Some of Australia's high-flying market darlings have seen heavy profit-taking as investors fret about contagion from the volatility roiling emerging markets. Once the dust settles we believe there will be buying opportunities on the ASX.
Stock on Focus: Telstra (TLS:AX)
While most ASX stocks were down yesterday, Telstra led gains on the market despite cutting its revenue guidance by $300 million. The telco said it was forced to review its outlook based on the number of houses and businesses connecting to the NBN this financial year being lower than previously thought.
As we touched on last week, Telstra shares have also moved higher on news of the merger between TPG Telecom and Vodafone Australia, presumably on the view that one larger competitor is not as much of a threat as 2 separate competitors in the market.
We have been cautious and currently remain on the side-lines with Telstra, as we continue to expect that competitive pressure will be overwhelming for the incumbent telco giant.
We are currently have a HOLD recommendation on Telstra.
Members should look out for a full update on Telstra to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market continued to move lower yesterday (ASX 200 index -1.12%), recording its worst session since March, hitting a two-month low as it fell for a sixth straight session.
The big banks outperformed but were still lower, as ANZ and Commonwealth Bank followed Westpac in increasing rates, lifting their variable home loan interest rates. Both banks said that funding costs had risen too much over the past few months and it had become too expensive to fund home loans at the current rates. CSL fell, leading the losses on the market, as the health sector fell. Sigma Healthcare shares plummeted after it announced a half-year net profit of $13.4 million, a fall or nearly 5%. The local Tech sector also sold-off, following moves on Wall Street.
The New Zealand market sold off on Thursday (NZX 50 index -1.37%) as many large stocks shed their dividend rights, with Synlait Milk, Heartland Bank and A2 Milk leading the index lower. While the NZX followed the sell-off across Asia, a lot of the weakness also came from large stocks going ex-dividend, with Air New Zealand, Heartland Bank, Trade Me Group, Sky Network Television and Vector all giving up dividend rights.
3 Things Markets Will be Watching this Week
1. Locally, investors in Australia and NZ will be watching for the last few company profit announcements as earnings season winds up.
2. The Reserve Bank of Australia makes an interest rate decision on Tuesday.
3. Important monthly US employment figures are released at the end of the week.
Have a Great Day,
Team