Global markets were lower on Friday, with US markets (S&P500 index -0.5%) extending losses for the week in a volatile session amid worries about tighter monetary policy and the ongoing COVID pandemic. Market concern is centred on the potential for new Covid-restrictions, given the surge in Omicron cases, and the prospect of Fed rate hikes next year to cool inflation. The proximity to year-end, normally a time when investors’ risk appetite is more limited than normal, is also probably a factor behind the recent volatility. To put things in context though, the S&P500 is still less than 3% from its recently set all-time high and is up some 23% this year.
All sectors were lower, financials leading losses giving back its gains from previous two-sessions. Mega cap tech shares continue to sell down, with the Nasdaq Technology index shedding -3% over the week. Fed Governor Waller said Friday that March would be a ‘live meeting’ for a rate hike. Shares of EV company Rivian tumbled -10.3% after announcing it would fall short of its 2021 production target.
European Markets (Stoxx 600 index, -0.6%) fell as hawkish tones from several major central banks weighed down on the market, as well as news that the omicron variant continues to spread rapidly.
This will be our final Daily email for the year until we return in January – members should keep an eye out for one more weekly later this week. We Hope all our members have a safe and relaxing Christmas and New Years Break.
Key things we will be looking at as we head into the new year include how central banks are going to combat inflation rates, and if they follow through with their current guidance of monetary policy. The underlying impact will be reducing liquidity in markets which has been the recent fuel for lofty valuations for some asset classes (particularly real estate, high growth [tech] stocks, and other alternative assets such as crypto currencies and NFT's etc). Our view is to be defensive against the eventual rise in interest rates, steering towards quality stocks which have tangible growth prospects.
The other key issue is how the impacts of lock down/travel restrictions in parts of the world (particularity in Europe) impacts economic activity, and how sectors such as travel and leisure bounce back will be an important feature at play. We will also be watching the how a rebound in activity plays out without any government support.
NZ King Salmon (NZK:NZX / NZK:ASX)
NZ King Salmon lifted their earnings (EBITDA) guidance for the 2022 financial year to $10.5m to $12.5m, up from $8m to $10m. While an improvement the company states that it continues to struggle with challenging trading conditions including elevated freight costs, raw materials cost inflation and ongoing Covid-19 restrictions impacting its key food services business. On a positive note, a change in farming model has seen improvement in fish size and yield.
We remain BUY rated on NZ King Salmon, with a high-risk caveat.
Australia & New Zealand Market Movers
The Australian market was up marginally on Friday (ASX 200 index +0.1%).
While most of the market rallied, buy now pay later stocks were sold off heavily bringing tech sector into the red. Afterpay (-7.6%) and Zip (-6.1%) were sold off hard continuing their month-long downward trend as rising interest rates hurt their valuations and regulators in the US step-up scrutiny, which prompting selling across most of the tech space.
Commodity and financial stocks were stronger, the big banks finding support after the Bank of England announced it raised rates surprising markets.
The New Zealand market (NZX 50 index) was down another -0.5% for a third day in a row, following a weak lead from Wall Street.
Local investors took a risk off approach, Pacific Edge (-5.8%) and Pushpay (-4.6%) led the market lower, as well as many interest rate sensitive stocks.
E Road led the gains on the day, climbing +8.2% as passive fund bought the stock in time of its inclusion into the NZX50 index on Monday.
Infratil edged +0.4% higher after expanding it’s reach in local radiology taking a 50.8% stake in Bay Radiology for $32.5m.
Fletcher Building rose +0.7% after the Commerce Commission said it will exclude plumbers and electricians from its investigation into the building sector next year – Fletcher being a major player in NZ’s plumbing sector, owning Mico NZ.