Global markets were higher overnight, even as weekly US jobless claims surged to 6.65 million people in the week ended March 28, as businesses closed around the nation to try and mitigate the coronavirus – indicating the market is already anticipating a lot of bad news. Crude oil prices also jumped after China said it would purchase oil for its reserves while Trump said he expects Russia and Saudi Arabia to cut crude output following a conversation with Crown Prince Mohammed Bin Salman
Once again, we are taking the current market volatility as an opportunity to buy quality companies which are trading at more attractive valuations compared to recent history, while remaining cautious on markets generally given the extent of the corona-virus pandemic is still uncertain. We are avoiding at risk industries such as retailers, tourism/hospitality companies, and airlines.
Stock in Focus: Harvey Norman (HVN:ASX)
Harvey Norman (HVN) shares have been under pressure as the covid-19 epidemic escalates, and were lower when they released a weaker than expected result for the first half of the 2020 financial year (for the 6 months ending December 2020).
More recently HVN provided a covid-19 update, and stated sales across most of its core regions reported higher sales for the first half of March, with limited number of stores forced to closed as HVN do not operate in covid-19 hotspots yet. Clearly this will not be the case as the virus spreads. HVN shares are likely to face more volatility over the near-term and on a medium-term view we see limited upside.
We are currently SELL rated on HVN.
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Australia & New Zealand Market Movers
The Australian market remained volatile, falling for the second time this week on Thursday (ASX 200 index -1.9%). The major banks were hit hardest on Thursday after the Reserve Bank of New Zealand ordered the big four banks to stop paying dividends back to their parent banks in Australia in order to build up more earnings to protect the New Zealand economy. There are reports that the Australian Federal government is not likely to bail out struggling airline Virgin Australia. Construction business Adelaide Brighton weakened after it became the latest company to withdraw its earnings guidance because of uncertainty surrounding how long the coronavirus pandemic may persist and its impact on the economy.
G8 Education shares rebounded +28% after the federal government announced it would help subsidize the childcare industry and keep 13,000 facilities open.
The NZ market was lower on Thursday (NZX 50 -0.6%) as Kathmandu led losses, falling 27%. The retailer raised $154 million at 50 cents a share from institutional investors, and is seeking another $53 million from retail investors, although cornerstone shareholder Briscoe Group has said it will not participate. Bank stocks were weaker, as locally, the Reserve Bank in a shock move changed the conditions of local bank registrations prohibiting them from paying dividends through the covid-19 crisis. On the flipside, Pushpay shares jumped 7%, the strongest gain for the day.
3 Things Markets Will be Watching this Week
- Coronavirus related news-flow remains key in terms of driving investor sentiment.
- Moves from central banks & governments globally in response to coronavirus,
- Key economic news events this week include the latest jobless claims data in the US along with nonfarm payrolls.
Have a Great Day,
