Global markets stabilised overnight as US stocks recovered from a brutal two-day selloff as strong earnings from Foot Locker and gains in technology stocks lifted investor sentiment ahead of the Thanksgiving holiday.
As we discussed yesterday, we are likely entering the late stages of what has been a long bull market. It is important for medium-term investors to remain calm during periods of heightened volatility. While we do believe there will be buying opportunities across Australia & NZ once the dust settles, investors who wish to protect against downside moves may want to build cash positions.
Stock in Focus: Lynas (LYC:AX)
Shares in Lynas have held up very well in the recent turmoil. Lynas is the only major rare earths miner outside of China and holds a strategic asset – Mount Weld which contains one of the largest and highest-grade rare earths deposits in the world. We believe there will be multi-year demand tailwinds for rare earth minerals given their use in electric vehicles, which are proliferating at a tremendous rate around the world.
Unlike other resources, rare earths are difficult to mine and process, making barriers of entry very high. What makes Lynas an interesting miner is that the industry is expected to enter a multi-year growth phase. Lynas also has ended its cash burn phase and is operating efficiently, assuming production levels hold, and the price of rare earths remain stable.
However, as a miner of a commodity it is exposed to pricing risk, and the hazardous nature of processing the rare earths means it is also prone to regulatory risk and government scrutiny.
For these reasons we initiate coverage on Lynas with a High-Risk BUY recommendation.
Australia & New Zealand Market Movers
The Australian share market was in negative territory yesterday (ASX 200 index -0.51%) as a late rally from banking and health care helped lift the Australian share market off a near two-year low but commodity-related stocks and tech shares weighed heavily. Coles shares have floated on the Australian stock market at $12.49, with Wesfarmers' price adjusting in early trade without the supermarket giant in its stable.
The New Zealand market sold off on Wednesday (NZX 50 index -0.55%) as Fletcher Building dropped to a 14-year low, adding to yesterday's rout after its profit warning. Growth stocks were once again hit hard as the local market joined a worldwide decline. Trade Me soared to a record on a potential takeover. Trade Me was the stand-out in the market, jumping 16% to a record close as the online auction site received a non-binding offer from UK private equity firm Apax Partners at $6.40 a share. Outside the benchmark index, NZME slumped to a two-year low as the company warned that annual earnings will fall by as much as 21 percent and said it probably won't pay a final dividend.
3 Things Markets Will be Watching this Week
1. Trade relations between China and the US ahead of the G20 talks later this month.
2. UK politics and whether Theresa May will face a vote of no confidence and then, what happens if she loses.
3. Minutes from the last reserve Bank of Australia meeting are released on Tuesday.
Have a Great Day