Investors Rotate | Kiwi Property Group

29 September 2021

Global markets were mostly lower overnight, but the US market (S&P 500 index, -0.3%) slipped as investors rotated their exposure following the recent hawkish tone from central banks globally.

In a similar rotation to earlier this year, cyclical sectors such as materials and financials outperformed. The economic recovery trade was also supported by stronger-than-expected reading for durable goods orders on Monday and easing covid cases. While high growth tech names and the defensive healthcare and real estate sectors sold off, all being sensitive to rising interest rates.  

European Markets were lower (Stoxx 600 index -0.2%) as investors digest German election results that showed the centre-left Social Democratic Party gained the largest share of the vote, 25.7% ahead of Merkel’s right-leaning bloc of the Christian Democratic Union and Christian Social Union.

Kiwi Property Group (KPG:NZX)

KPG’s shares were under pressure temporarily due to the lockdown restrictions effecting its core properties, however have recovered after announcing its beginning to enter residential market in the form of development build to rent apartments at its existing property sites.

KPG initially plans to build a 295 unit apartment complex at its Sylvia Park property, evolving its mixed use space, with works current underway and construction set to begin late 2021 and rent to being by early 2024. We see the move as positive further enriching its mixed use properties community as well as diversifying its risk towards residential property.

KPG’s NTA (net tangible asset) value is now $1.36 per share, so the stock is trading at an attractive -13% discount to NTA (because of its shopping mall assets), versus the broader sector which is at a +7% premium. KPG remains our top sector pick given its attractive valuation both relative to peers and in absolute terms, with a solid pipeline of activity – especially its Drury site which looks set to create strong growth and leverage mixed use property plans. 

Since KPG’s is trading well below its pre-covid levels its assets are not as overpriced as opposed to peers and should be less prone to a sharp sell off for when interest rates due rise, in our view. KPG also provide an attractive ~4.6% dividend yield to investors who are willing to hold the stock.


Australia & New Zealand Market Movers

The Australian market was up on Monday (ASX 200 index +0.6%).

Travel stocks performed well as details of NSW’s road map out of lockdown were revealed with a plan to ease restrictions next month and reopen to other states (and possibly to overseas travel) by Christmas assuming vaccination thresholds were met. Flight centre rose +7.5%, Webjet advancing +5.2% and Corporate travel management firmed +3.1%.

Energy stocks led the market higher buoyed by oil pricing hitting the highest level since 2018 as the market grapples with tightening supply and booming demand. Major miners also performed well as the price of iron ore stabilised following its sharp descent.

Rising bond rates globally saw Healthcare and Tech sector both trade lower, while Financials were stronger – as benefactors of rising interest rates.

The New Zealand market was down yesterday (NZX 50 index -0.2%) as NZ government bond yields rose to the highest level this year, amidst more hawkish tones from central banks around the world. 

Synlait led the market up +7.9% following its annual result providing investors some assurances cost cutting and strengthening their balance sheet to return to profitability, while A2 Milk was up +2.9%, both making back ground from their sharp sell off recently. 

A lot of property stocks were weaker, including retirement village operators (which are linked to residential house prices) with Oceania Healthcare hardest hit down -3.3%. 

3 Things Markets will be Watching this Week

  1. After an eventful week for China last week, there is likely to be more focus on the latest Chinese PMI (manufacturing) data this week
  2. ​Locally, latest ANZ Business and Consumer Confidence data in NZ will be released
  3. Locally, financial results from Synlait Milk and NZ King Slamon, and AGM’S held by the ASX, Vector and Steel & Tube.
Global markets were mostly lower overnight, but the US market (S&P 500 index, -0.3%) slipped as investors rotated their exposure following the recent hawkish tone from central banks globally.

Do You Want Daily Market Insights?

If you’re interested in staying up-to-date with the latest news and analysis on stocks, be sure to sign up to BlackBull Research.

1 Month Free Trial

Access our expert stock market research Free of charge with no obligation

Free 1 Month Free Trial

Unlock this article & access our expert stock market research

ASX, NZX & USD Stock Buy, Hold, Sell recommendations. Model Portfolios. Daily news and more