Markets in ‘Wait and See’ Mode | Kiwi Property Group

26 May 2021

Global markets were mixed overnight (S&P 500 index -0.2%) as investors were in a 'wait and see' mood, awaiting economic data and the next big event which will be the Fed's tapering or no tapering schedule. The US Fed’s Vice Chair Clarida reiterated view that price pressures will be temporary while suggesting that they may be able to start taper talk at upcoming meetings as ‘it’s going to depend on the flow of data’.

Energy and Utilities was the worst performing sectors in the US market, while the more defensive real estate and consumer discretionary sectors were higher. Airline and cruise lines provided the support, with United Airlines jumping +3.2% after the carrier said yields on domestic leisure tickets purchased this month topped 2019 levels amidst reopening. Boeing rose +2.2% after aircraft leasing business SMBC Aviation capital agreed to buy 14 more 737 MAX jets.

European markets (Stoxx 600 +0.0%) ended flat as German property and tech stocks were offset by losses in energy and mining stocks. Europe's largest residential property group Vonovia agreed to take over rival Deutsche Wohnen for about €18 billion.

Kiwi Property Group  (KPG:NZX)

Kiwi Property Group (KPG) shares edged higher yesterday after delivering their 2021 first year result, which came out better than anticipated.
Reported net profit after tax came in at $196.5m, as revaluation gains in the current year reversed most of the losses experienced in the previous year due to covid-19. KPG's operating result was greatly impacted by covid-19 lockdown at the start of the financial year with net rental income and adjusted funds from operations (KPG's preferred operating measure which ignores revaluation gains) both down -7.1% and -12.5% respectively from the previous year – due to cost of lockdown and rent relief offered to tenants. 

KPG announced that they would proceed with the sale of their retail assets and would use the funds to expand their mixed use site and bring forward development of their Drury property (another mixed use site) and that their 2022 dividend would be no less than 5.3 cents per share (a cash dividend yield of 4.4%).

Overall it was a sound announcement and we continue to remain BUY rated on KPG as our top commercial property pick given it still trades at a significant discount to its NTA  and pays a reasonable dividend return. 



Australia & New Zealand Market Movers

The Australian market was higher on Tuesday (ASX 200 index +1.0%) as major miners reversed previous days losses and shrugged off the recent fall in iron ore prices.

The price of iron ore fell to just below $200 / tonne, for the first time in 3-weeks, despite this BHP advanced +1.3%, Rio Tinto climbed +1.6% and Fortescue Metal adding +1.6%, with smaller miners also experiencing healthy gains.

The big 4 major banks were also trading higher, another major contributor to the positive day of trade, with most sectors in the green led by Real estate, while utilities was the only sector in the red. 

Highly volatile consumer discretionary stocks were among the markets best performers, gaining +6.6%, climbing +5.1%, Super Retail group rose +4.5% and Treasury Wines firming 3.2%. 

The New Zealand market was lower again yesterday (NZX 50 index -0.9%) dragged down by market heavyweight Fisher and Paykel Healthcare.

Fisher and Paykel healthcare fell -3.7% heading into its result for the 2021 financial year which has high expectations, with the major uncertainty being guidance and how the company will operate "post-covid". 

New Zealand Refining jumped +7.2%, after Z Energy  (a major shareholder and NZR's largest customer) agreed to close its crude oil refinery and convert the site into an import terminal only, now requiring final sign off from directors and other shareholders.

Retirement village operator Arvida jumped +1.1% after releasing their full year result, reporting net profit tripling due to unrealised property revaluation, while underlying profit was flat due to impacts of covid-19.   

3 Things Markets will be Watching this Week

  1. Central bank rhetoric globally remains in focus for investors. 
  2. The Latest RBNZ OCR meeting on Wednesday and a raft of US data including new home sales, consumer confidence, 1st quarter GDP, durable goods and pending home sales. 
  3. Across Australasia, earnings releases are due from Aristocrat, Kiwi Property, Mainfreight and Fisher & Paykel Healthcare while James Hardie is scheduled to host an Investor Day on Tuesday.
Global markets were mixed overnight (S&P 500 index -0.2%) as investors were in a 'wait and see' mood, awaiting economic data and the next big event which will be the Fed's tapering or no tapering schedule.

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