Global markets continued to rally overnight as the S&P500 (major US market index) touched its record high and equalled its longest-ever bull-market run. We are now in the 9th year of a bull market since the depths of the global financial crisis at the start of 2009.
Driving markets higher has been continued strength in company profits, with the latest corporate earnings season not failing to deliver and solid economic growth. Risks to the bull market include a trade war, although recently there are hopes that the United States and China can resolve their tariff dispute with meetings scheduled this week. Finally, as we have discussed in the past, a key factor to watch will be interest rates, particularly the pace of rate hikes in the US by the Federal Reserve. We are watching developments closely.
Closer to home, the local earnings season continues across Australia & NZ, with the ASX suffering a sharp fall yesterday as market heavyweights – the banks, miners, and supermarkets sold off.
Stock on Focus: Healthscope (HSO:AX)
Among the stocks under our coverage to report yesterday was private hospital operator Healthscope (HSO).
HSO, which recently rejected two takeover approaches, said its operating profit was down -4.4% on last year to 375.9m, although this was largely expected by the market.
What looks to have encouraged investors is that HSO has outlined a plan to set up a new property trust (worth about A$1bn) to hold its hospital properties and release capital, selling nearly half of that to investors. The move will help Healthscope make the best of buoyant commercial real estate prices and free up cash as a costly hospital expansion program, shrinking patient demand and cuts to private health insurance pay-outs weigh on its profits.
We currently have a BUY recommendation on HSO.
Members should look out for a full update on HSO to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market sold off yesterday (ASX 200 index +0.96%) as the ASX recorded its worst session in five months. In stock news, BHP Billiton shares fell despite the mining giant reporting a +33% increase in underlying profits, which fell short of analyst expectations. Shares in live export company Wellard tumbled as the company turning its operating earnings loss of $22.3m last year around into an operating profit of $9.9m. However, the chairman warned that the company is once again in danger of breaching banking covenants.
The New Zealand market was a touch higher on Tuesday (NZX 50 index +0.07%) with gains being led by Vector and A2 Milk.
Stocks which reported included Mercury NZ, which reported a record $561 million (up +7% on last year) in operating earnings on the back of record generation and high wholesale power prices. The result was solid but largely in line with expectations which saw the share price remain largely unchanged. Manuka honey producer Comvita was slightly lower as it reported a full-year operating profit from a loss a year earlier and said it has a positive outlook for the current financial year. Comvita’s operating profit of $9.3 million was within its forecast range of $8 million-to-$11 million, and a turnaround from a loss of $5.5 million in the year-earlier period.
3 Things Markets Will be Watching this Week
1. Locally, investors in Australia and NZ will have a number of profit announcements to focus on as earnings season continues.
2. RBA Governor Lowe makes a speech on Tuesday, with minutes from the last Reserve Bank of Australia meeting released on the same day.
3. The annual Jackson Hole meeting of global central bankers kicks off on the weekend.
Have a Great Day,
Team
