Global markets were lower on Friday with US stocks experiencing their fifth day of losses after weak US jobs data added to concerns over cooling global growth.
After a remarkably strong first 2-months of 2019 (with the US & NZX markets near all-time highs & the ASX at a 6-month high) there has been an unwind and return of risk-off sentiment over the past week. The sell-off was sparked by a sharp fall in China’s exports and after the European Central Bank became the latest central bank to voice concerns about growth. A global economic growth slowdown is a risk which could cause a significant market correction, particularly if the US & Chinese economy’s slow materially – and this was a major reason for the sharp sell-off late last year.
As we highlighted in our year ahead outlook at the start of the year, we are watching 3 key areas in 2019 which we believe will drive markets: the extent of the Global Growth slow-down, Political Uncertainty, and Interest Rates moves as global Central banks unwind stimulatory measures. In Jan & Feb investors have cheered the fact that there have been positive signs around the US/China trade battle, and that central banks such as the US Fed are becoming more dovish – and interest rates have moved lower, supporting equity market returns this year. However, there remains a large question mark around global economic growth.
Hence market volatility is likely to remain elevated in our view, and we are likely in the latter stages of what has been a very long bull market since the global financial crisis in 2009. These factors above remain key, and we continue to monitor developments closely
Stock in Focus: EBOS (EBO:NZX / EBO:ASX)
EBOS has been a great performer for us over the past few years, and the healthcare business recently released its first half result.
EBO shares slipped slightly on its 2019 first half result after its reported net profit after tax fell -4% from last year to A$67m, being negatively impacted by one-off costs. Operationally it performed well, after stripping the one-off costs net profit grew +4% driven by strong performance from its animal care segment.
EBOS lifted its interim dividend by +4.5% from last year to 34.5 cents per share. Management expect modest growth to continue through the remainder of the 2019 financial year, while a significant boost will be realised next year with the commencement of their supply agreement with Chemist Warehouse at the start of 2020 financial year.
We currently have a BUY rating on EBO.
Australia & New Zealand Market Movers
The Australian share market sold-off on Friday (ASX 200 index -0.96%) over concerns about a global growth slowdown, with nearly every sector on the local bourse in the red. Financials were hit hard, and the major oil stocks Santos, Woodside Petroleum, Oil Search, Origin Energy and Beach Energy were also down despite oil prices moving higher overnight.
The New Zealand market was pretty much flat on Friday (NZX 50 index +0.03%) with the electricity generator stocks and Auckland Airport seeing buying support. Sky Network Television was the day’s biggest gainer as “bargain hunters” emerged, in the context of its shares still being down more than 28 percent year to date as investors worry about new technologies eroding its franchise.
3 Things Markets Will be Watching this Week
- Important US consumer inflation figures are published on Wednesday.
- US Federal Reserve Chairman Powell makes a speech on Tuesday.
- China will release retail sales, industrial production and fixed-asset investment reports on Thursday.
Have a Great Day,