Global markets sold off overnight as the number of covid-19 cases continues to surge higher. The economic impact continues to rise, with uncertainty around a recovery depending on how much longer shutdowns are to be in place. More US cities are now entering into full lockdown, as well as New Zealand and the UK, with Australian having a similar restriction in place.
Governments are trying to boost financial aid but investors lost confidence after a $2 trillion congressional spending package failed to be passed overnight. At the same time, the US Federal Reserve has indicated it has unlimited buying power, and has extended its asset purchases to include corporate bonds.
We are watching developments closely as they unfold, and our base case remains that there will be a buying opportunity for medium term investors over the next few months – with quality companies becoming attractively priced. Near-term volatility is still at heightened levels, and it would still be prudent to wait for the number of cases to slow down to give the market confidence that we have neared the bottom.
Stock in Focus: Sydney Airport (SYD:ASX)
Sydney Airport (SYD) shares were higher amidst yesterday's heavy sell off.
The countrywide shutdown on unnecessary travel and ban on any foreign travelers to enter the country has caused airlines to cut capacity significantly. SYD announced they expect significant but temporary reduction in traffic, with measures in place to cut costs and review capital expenditure for the remainder of the year. Highlighting their balance sheet and liquidity is in a sound position to ride out the current crisis with A$350m in unrestricted cash and an undrawn debt facility of A$1 billion. We think SYD's balance sheet is solid enough to endure a 6-month disruption, but if the disruption lasts 12-months there could be issues.
Due to market volatility and economic uncertainty especially around the tourism sector we remain HOLD rated.
Members can login to read our full reports on Sydney Airport
Australia & New Zealand Market Movers
The Australian market fell heavily on Monday (ASX 200 index -5.6%) as the Australian government announced over the weekend that non-essential businesses to be closed for a number of months, and discouraged unnecessary travel. The major banks were hit the hardest, as the markets now price in that fact that a lot of businesses and individuals will struggle to make payments increasing default risk despite the government stepping in to provide assistance.
Closure of casinos and pubs and clubs over the weekend meant the major casino stocks were heavily hit as Crown is now forced to closed, but its shares remained in a trading halt so are yet to digest this news. Only a few companies ended the day in the green including a number of gold miners, and CSL which ended the day up +4.2%.
The NZ market slumped (NZX50 -7.6%) as the government announced, a full 4-week lockdown to commence on Wednesday, as the covid-19 virus is now being transmitted on a community level.
All bars, restaurants, cafes, cinemas, civic amenities and all non-essential businesses will be required to close, while pharmacies, supermarkets, banks, and other essential services will continue to operate. Tourism, property , and retail facing stocks were hit heavily, more affected by the shutdown. Fisher and Paykel healthcare was the only stock on the NZX50 to gain, up +2.3% as it will continue to operate as an essential service – which actually benefits from a strong demand for its respirators, and other breathing devices.
The retirement sector was hit heavily again, as it was announced over the weekend a staff member at Heritage Lifecare group tested positive for covid-19 putting the centre in lockdown and more recently in the media it suggests two Metlifecare residents tested positive, after returning from a holiday in Australia. The power generators which make up most of the market were also down, as rumours suggest the Tiwai aluminum smelter plant will close – however there has not been an official statement released by Rio Tinto yet.
3 Things Markets Will be Watching this Week
- Coronavirus related news-flow remains key in terms of driving investor sentiment.
- Moves from central banks globally in response to coronavirus,
- Corporate earnings guidance changes from Australasian businesses.
Have a Great Day,