Daily Market Insights
Global markets sold off but pared losses overnight, as bank stocks on Wall Street fell following disappointing revenue updates from JPMorgan Chase and Bank of America.
Markets ended May on a mixed note. The Australian market (measured by the ASX 200 index) lost -3.3% for the month of May, which was the markets worst monthly performance since January 2016. In contrast, the New Zealand market (measured by the NZX 50 index) was +0.5% higher for the month.
One of the worst performing sectors in recent times has been the retailers, more so in Australia than NZ. In Australia, headlines over the last few months have focussed on the tough consumer backdrop. It is looking unlikely that consumers will increase spend in the near future either, with the banks hiking mortgage rates, rising petrol prices and utility bills, combined with negative real wage growth.
If that was not enough to deal with, the sector faces the ominous threat of online retail giant Amazon – which is preparing itself to enter the Australian market.
Stock in Focus: Myer (Myer.AX)
While there was some relief for Myer yesterday, shares in Myer have plummeted about -30% over the last couple of months as one of the major casualties of investor concern around the retail sector.
The fall has been driven by a number of factors 1) widespread concerns around the state of the Australian consumer backdrop, 2) Austradia Pty (the Australian franchisee of TOPSHOP TOPMAN) going bankrupt, 3) the potential impact from Amazon and TJ Maxx entering the Australian market.
However, it should also be kept in mind that only a few months’ back shares in Myer surged on speculation of a takeover. Given the share price is now trading at 86 cents, the chance of a full-blown takeover from Premier Investments (who currently own 11% of Myer) has clearly increased in our view. Secondly, Myer’s strategic turnaround remains largely on track.
Clearly investor sentiment is extremely negative towards Myer and the retail sector general at present. At the current juncture, Myer looks oversold, in our view. In saying that, investment in Myer it is not without risks.
We are currently BUY rated Myer as a High-Risk investment.
Australia & New Zealand Market Movers
The Australian share market managed to trade in positive territory on Wednesday (ASX 200 index +0.12%) as buyers returned to the Big Banks and consumer staples stocks. Widespread discussion that the property market is set for a slowdown saw investors continue to pull funds out of the real estate stocks.
The New Zealand market was slightly higher yesterday (NZX 50 index +0.09%) with international index changes boosting turnover. Trustpower, Xero and Argosy Property Trust led the market higher. In stock news, property investor NPT saw its shares fall as it posted a 63% drop in annual profit to $3.1m, which included a $1.7m reduction in the value of the company's property portfolio.
3 Things Markets Will be Watching this Week
1. Whether market calm persists and if the US market hits new all-time highs.
2. Important monthly US manufacturing and employment data is released at the end of the week.
3. The Reserve Bank of New Zealand releases its financial stability report on Wednesday.
Have a Great Day,
Team
