Global markets were mixed overnight as US markets moved between small gains & losses.
The big news across Australasia yesterday related to the bank stocks which rallied when the Reserve Bank's new capital adequacy rules weren’t as harsh as some investors feared.
The Reserve Bank granted a longer transition period for lenders to adapt to new rules requiring them to hold more capital, and also stepped back from demanding all the extra capital be equity. While the RBNZ confirmed it will require Australia’s major banks to lift their ‘tier 1’ capital ratios to 16%, it increased the implementation period by two years to seven years and expanded the balance sheet items that would qualify.
ANZ – New Zealand’s biggest lender – said it would need to retain $1.5 billion of local profit and was confident it wouldn’t need to raise additional equity.
Westpac said it would need a further $2.9 billion of tier 1 capital to meet the new requirements by 2027. ASB Bank-owner CBA said it was well placed to manage the new capital requirements. NAB said the impact would depend on a number of factors, such as subsidiary BNZ's balance sheet through the transition period and any mitigating actions. The news does remove an overhang and uncertainty that has been lingering over the Bank sector, including Heartland bank.
Stock in Focus: Scales (SCL:NZX)
Scales posted the day’s biggest fall on the NZX yesterday as the fruit exporter said it was on track to meet 2019 guidance but warned 2020 earnings would be flat due to capital spending plans and cost pressures.
Scales maiden 202 guidance signals a 10% decline in earnings and is clearly not a positive announcement. However, we believe Scales still offers an attractive medium term risk reward opportunity to gain exposure to global agricultural trends. We remain confident in SCL’s ability to growth their earnings both organically and via strategic acquisitions given the additional funds it has to reinvest – as it actively searches to make a value add agri acquisition.
We currently have a BUY rating on Scales.
Australia & New Zealand Market Movers
The Australian market rebounded on Thursday (ASX 200 index +1.16%) ending a two-day sell-off to close higher as the banks rose and US-China trade deal commentary swung back into positive territory. Afterpay shares rose after the payments company said sales from Black Friday and Cyber Monday were 160 per cent up on 2018 and that it had added another 140,000 new customers over the two days.
The New Zealand market was higher yesterday (NZX 50 index +0.43%) in a busy day of news flow. Heartland Group was higher as it said it would need to increase its capital by $18 million a year, but wouldn't need to change its dividend policy or seek a capital injection from shareholders. Infratil increased after Tilt Renewables agreed to sell a windfarm in South Australia for a net A$455 million (Infratil owns a controlling stake in Tilt).
Z Energy ended the day down after the Commerce Commission’s recommendation to regulate wholesale petrol markets were consistent with draft suggestions and likely to be implemented by government. However, in term of retail fuel market competition in NZ, recent price data suggests margins remain under strong pressure.
3 Things Markets Will be Watching this Week
- In NZ, the RBNZ is due to announce the new capital requirements for NZ banks and the ComCom due to release the final Fuel Study report.
- The Reserve Bank of Australia meets on Tuesday and markets expect the bank to keep interest rates on hold.
- Closely followed US payroll and manufacturing surveys are released this week.
Have a Great Day,