Financials Tank, Second Wave Concerns | Fonterra Result

23 September 2020

Global markets continued the recent downward trend overnight (S&P 500 Index -1.1%) with all three of Wall Street’s main indexes lower, although Tech stocks outperformed.

The sell-off reflects broadly weaker risk sentiment, with a number of concerns cited, ranging from a deterioration in trends in COVID-19 case numbers with the associated threat of more lockdowns (in the US, Europe, and the UK), a report on the banking sector that showed some major global banks’ lax response to anti-money laundering warning signs, and the upcoming US elections, with the death of Justice Ginsburg adding another layer of risk.  

The S&P 500 index is now down about 9% from its record close on Sep 2, with all sectors in the red and economically sensitive groups are getting hit the hardest. 

Fonterra  Shareholders Fund (FSF:NZX)
Fonterra shares were higher yesterday after realising a strong net profit after tax of $382m, on the top end of its guidance. Managing to pay out a 5 cents per share dividend, and lower net debt by $1.1 billion over the year. 

Fonterra anticipate covid-19 related challenges are likely to continue releasing a wide guidance range of 20 to 35 cents per share reflecting uncertainty around the food services businesses. 

At current valuations we believe Fonterra is more or less fairly valued and remain comfortable with our HOLD rating.

Australia & New Zealand Market Movers

The Australian market was lower on Monday(ASX 200 Index -0.7%) nearing a  three-month low, pulled lower by losses in the heavyweight mining and bank sectors, with the mood fragile as European covid-19 cases rose again.
However, retailer Harvey Norman a select few  bucking the trend, jumping +2.1% per cent after reporting a +31% per cent sales surge over the past few months, with founder Gerry Harvey saying it is the best retail conditions he has seen in his six decades in the industry.

The New Zealand market sold off again yesterday (NZX 50 Index -0.8%) extending its losses, as investor confidence wears down amidst a global recession in progress. Some of the strong performers of the year sold off as investors took profit, with Pushpay down -3.8%, Fisher and Paykel Healthcare down -3.3%. 

Retailer Kathmandu posted the day’s biggest gain, climbing +3.2%  ahead of its full year earnings report on Wednesday. 
Genesis Energy rose +1.4% and Contact Energy rose +1.1% as demand for reliable dividend stocks held up  due to the low interest rate environment, in favour of growth stocks due to underlying economic risks.


3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​​COVID-19 related -flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
  2. Locally, the RBNZ OCR meeting is the key event on Wednesday.
  3. There will also be earnings from Nufarm, Kathmandu, Premier Investments and Hallenstein Glasson. AGM’s are scheduled for Turners Automotive, Mercury, Oceania Healthcare and Vector.
Global markets continued the recent downward trend overnight (S&P 500 Index -1.1%) with all three of Wall Street’s main indexes lower, although Tech stocks outperformed.

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