Global markets ended the month on a positive note overnight. US stocks rose for a second day as investors snapped up beaten-down technology favourites and strong results from the likes of Facebook & General Motors lifted spirits at the end of a torrid month for global equities.
October was the worst month for stocks in years, as investors dumped growth stocks in a broad move lower. Once again, there does not seem to be a single catalyst for the sell-off, but a number of concerns worrying investors. Rising interest rates, and impacts of trade tensions and Chinese growth are the two big risks for markets, in our view. We believe it is important for medium-term investors to remain calm in volatile periods.
Looking ahead, there are split views from commentators, as to whether the way is now potentially clear for an end-of-year rally or whether we at the start of a bear market. We think the US mid-term congressional elections will be an important event to watch.
Stock in Focus: ANZ (ANZ:AX / ANZ:NZ)
Australia & New Zealand Banking Group kicked off reporting by the Big Aussie Banks yesterday, reporting that its full-year cash profit from continuing operations fell 5%.
The banks have been under pressure from the Royal Commission into financial services and investors want to see how lenders will improve earnings, particularly as Australia's property market slows. ANZ CEO Shane Elliott said yesterday that a simpler bank with less complex products will have less complaints from customers and be in a better position to avoid the sorts of issues exposed at the royal commission. ANZ's simplification program has included the disposal of 21 different businesses, the shrinking of the institutional bank, withdrawal from certain parts of Asia and the introduction of agile work practices. This is part of the reasoning behind ANZ being our top pick in the sector.
While earnings prospects for the banking sector look quite poor, we would highlight that yields appear supportive for share prices, with ANZ trading on a dividend yield of about 6.4%
We are currently BUY rated on ANZ.
Australia & New Zealand Market Movers
The Australian share market was in positive territory again yesterday (ASX 200 index +0.43%), as a late surge from heavyweight banking, mining and energy stocks has pulled the Australian share market higher on a choppy trading day. In stock news, Origin Energy has seen a 12% quarterly lift in oil and gas revenue despite production remaining steady, with the company attributing the rise to higher commodity prices. The Australian dollar has slipped after weaker-than-expected inflation data reaffirmed views policy would remain accommodative for a long time to come.
The New Zealand market continued to trend higher on Wednesday (NZX 50 index +1.20%) as Asian stocks followed Wall Street higher, with New Zealand one of the stronger performers. Kathmandu Holdings led the market higher, up 4% after disclosure notices showed First NZ Capital increased its stake in the outdoor equipment chain to 11.4%. In stock news, Auckland International Airport rose on higher than normal volumes after reaffirming guidance for a modest increase in annual earnings. Tourism Holdings gained slightly after the company said net profit will fall by as much as 15% as it invests in building a global business.
3 Things Markets Will be Watching this Week
1. US corporate earnings season for the 3rd quarter is underway, with a number of major companies set to report this week.
2. Trade related news-flow is likely to continue to feature in headlines, and important monthly US employment figures will be released at the end of the week.
3. Locally, in Australia some of the major Banks such as ANZ and Macquarie will be releasing updates.
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