Fed Stays Dovish | Auckland Airport Update

21 March 2019

Global markets were mixed overnight, as shares on Wall Street digested the much-anticipated announcement from the US Federal Reserve (Fed) this morning.
The Fed this morning sent a dovish message to the market which it wanted, as the accompanying economic projections signalled policymakers don't expect to lift rates again this year. There was a slight downward revision to the US economic outlook, a September end to balance sheet reduction, and the signal of no rate hikes for 2019. The Fed said – "The Committee continues to view sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2 per cent objective as the most likely outcomes… In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes".
As we have discussed previously, lower interest rates are supportive of share markets and rates have moved significantly lower since late last year. It will continue to be important to watch moves from the Fed, and in particular a return of inflation in the US does present a risk, as it would force the Fed to potentially raise interest rates once again.


Stock in Focus: Auckland Airport (AIA:NZX / AIA:ASX)

Shares in AIA have experienced a strong run of late, with the market reacting positively towards their 2019 interim result.

Moderating passenger growth as well as the completion of a number of retail offerings and investment properties lifted revenue +11.5% from last year to $370.6m, and underlying profit (which excludes revaluation gains) was up +2.9% from last year to $137.7m, which was slightly ahead of expectations. 

We see AIA as a key beneficiary of the tourism boom as they continue to report growing passenger numbers. However, we still see AIA as fully-priced especially given the recent run, trading on a valuation of 32.5x earnings and a dividend yield of 3.9%. Further, it needs to be kept in mind that significant infrastructure spend is planned and it is likely AIA will be taking on more debt with the possibility of an equity raise to fund expansion around the corner, if expansion cannot be funded from free cash-flow.

Accordingly, we believe there are better value investments to focus on in order to gain exposure to the tourism theme.

We currently have a HOLD rating on AIA.

Members can login to read our full reports on AIA.


Australia & New Zealand Market Movers

The Australian share market continued to trend lower yesterday (ASX 200 index -0.32%) as conflicting reports regarding the US-China trade talks put investors back on the defensive. In stock news, Nufarm shares fell sharply after the company announced underlying earnings of $120.9 million, down 2 per cent on a year ago. The company said tough conditions had hurt it in the first half and forecast further softness in the second half. Wisetech Global returned from a trading halt on Wednesday announcing the successful completion of a $300 million placement to new and existing institutional investors, with the funds set to be used to fund the company’s growth and acquisition strategy.

The New Zealand market sold off on Wednesday (NZX 50 index -0.65%) as the NZX fell for a second day, led lower by Synlait Milk after the dairy company reported weaker earnings, disappointing investors who had anticipated another strong result. The milk processor reported a 9.7 percent decline in first-half profit as a new pricing arrangement with A2 Milk and restrictions on Chinese imports squeezed margins. Fonterra shares fell even as it announced it returned to profit, with its NZ ingredients business and Oceania consumer and food service units delivering most of the earnings. 


3 Things Markets Will be Watching this Week

  1. The US Federal Reserve makes an interest rate decision Thursday morning AU/NZ time.
  2. Thursday also sees the release of official NZ economic growth (GDP) figures.
  3. Tuesday sees the release of minutes from the Reserve Bank of Australia’s last meeting, as well as Aussie house price data which is expected to confirm a suspected slowdown.


Have a Great Day,


The Fed this morning sent a dovish message to the market which it wanted, as the accompanying economic projections signalled policymakers don't expect to lift rates again this year.

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