Global markets sold-off overnight, as US stocks ended a four-day rally on fears of slowing global growth after the International Monetary Fund (IMF) trimmed its outlook.
In its second downgrade in three months, the IMF cut its world economic growth forecasts for 2019 and 2020 due to weakness in Europe and some emerging markets. As we discussed in our year ahead outlook, a significant slow-down in global economic growth is a risk for markets, although share markets have moved lower to reflect these risks to some extent. Meanwhile, there is a continuing US federal government shutdown, now into a 32nd day with no signs of a break in the impasse between the White House and Congressional Democrats.
Once again, we expect volatility in markets to remain elevated while investors face a number of uncertainties.
Stock in Focus: Summerset (SUM:NZX / SNZ:ASX)
Summerset shares were hit heavily last October in the market sell-off, but more importantly as growing concerns surrounding the property market have seen significant selling pressure across the retirement village sector.
The three major retirement village operators being Ryman, Summerset and Metlifecare have all experienced large declines since reaching record highs around September 2018.
With Melbourne and Sydney reporting sizeable falls in house prices from their peak, we think this is a trend likely to be followed in New Zealand over 2019. Having achieved substantial growth in the past, Summerset’s tailwind of rising property prices is likely going to become a headwind over the medium-term. While demand for retirement villages will likely remain strong, any weakening in the property market will weigh on operating profit growth over the near term, tightening Summersets margins on both new builds and resales.
Members should look out for our full update on Summerset to be released in today’s weekly report.
Australia & New Zealand Market Movers
The Australian share market closed lower (ASX 200 index -0.54%) for the first time in six days dragged heavily by financials.
In stock news, mining giant BHP Billiton said its second-quarter iron ore production has fallen nine per cent and the mining giant has flagged a $US600 million hit due to production disruptions at its copper and iron ore operations. Super Retail Group, the owner of Rebel Sport and Supercheap Auto is the latest retailer to report a weak start to the crucial December sales period, saying its customers took advantage of events like Black Friday to do their Christmas shopping earlier. The TPG-Vodafone decision pushed back to April. A regulatory decision on whether or not to allow TPG and Vodafone’s proposed merger to proceed is now not expected until mid-April due to a delay in receiving information from the two telecommunications companies.
The New Zealand market sold off yesterday (NZX 50 index -0.37%) as investors fretted about a possible slowdown in global growth. Spark saw the heaviest volumes traded, although overall volumes remain light as many market participants have still not returned from the holiday period.
3 Things Markets Will be Watching this Week
- US corporate earnings season continues this week.
- The Bank of Japan makes a policy decision on Wednesday, and the European Central bank will also make a decision on Thursday.
- China releases it 4th quarter economic growth (GDP) numbers on Monday.
Have a Great Day,