Daily Market Insights
Global markets were lower overnight as investors moved out of riskier assets ahead of what is expected to be a busy Thursday, when Britain goes to the polls and former FBI director James Comey testifies before Congress.
Yesterday saw the Reserve Bank of Australia’s keep the cash rate steady at 1.50% for the 9th consecutive month, as was widely expected.
From the outlook comments, do not believe there will be rate cuts in the near term, although several in the market are now calling for further interest rate cuts. As we discussed post last month’s meeting, market commentators continue to be split on the outlook going forward (between rate cuts or hikes) and expect the RBA to remain on hold for the near term.
Shares in MG Unit Trust (MGC.AX) plummeted to an all-time low yesterday as the company announced it is beginning a new strategic review. Although a “dining boom” is one of our key investment themes, we would reiterate that selecting the right stock to play an investment theme is crucial
While MGC’s share price has been hit hard in recent times, Fonterra shares (FSF.NZ / FSF.AX) have performed relatively strongly. We have previously highlighted the potential issues with MGC and favoured FSF as an investment into the dairy sector. The charts below clearly illustrate the importance of selecting the right company in an industry to play an investment theme such as dairy.
Stock in Focus: MG Unit Trust (MGC.AX)
Murray Goulburn is Australia’s largest dairy food company, and owns MGC as its listed investment vehicle (in a similar way to Fonterra and the Fonterra Shareholders Fund listed on the NZX).
MGC said yesterday that it forecasts 2018 full year milk price to be in the range of $5.20/kg to $5.40/kg and set its opening price to $4.70. This saw backlash as farmer’s argued this is below their cost of production, which could force some to move to rival companies. MGC CEO Ari Mervis said that while the opening and forecast prices were an improvement on 2017, MGC's performance remains below his expectations. The CEO announced the commencement of a strategic review which will look at all aspects of MG's strategy and corporate structure, including the profit sharing mechanism and capital structure.
Clearly the market has responded negatively to the news, and we are currently reviewing our Hold recommendation on MGC.
We remain comfortable with our BUY rating on FSF as a medium term investment.
Members should look out for our full update on MGC to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market fell sharply yesterday (ASX 200 index -1.52%) as it wiped most of its gains for 2017. There was broad based selling across the market, with the Big Banks once again feeling the brunt of the sell off.
The New Zealand market was slightly lower on Tuesday (NZX 50 index -0.07%) as the dual-listed banks and Sky Network Television weighed on the market, while Air New Zealand extended last week's gains. Global uncertainty also saw investors move into stocks with more certainty and yield, such as Genesis and Z Energy.
3 Things Markets Will be Watching this Week
1. Whether market continues to trend higher, with the US market continuing to reach new all-time highs.
2. Australian quarterly economic growth (GDP) figures are released on Wednesday.
3. The Reserve Bank of Australia makes an interest rate decision on Tuesday
Have a Great Day,
Team
