Global markets partially recovered overnight as major US market indexes bounced following a sharp sell-off in the prior session, as Trump forecast a trade deal with China and somewhat cooled investor concerns.
Trump said after a G7 summit of world leaders in Biarritz, France, that he believed China was sincere about wanting to reach a deal, citing what he described as increasing economic pressure on Beijing and job losses there. Sentiment which was reiterated by French President Macron. Chinese Vice Premier Liu He, who has been leading the talks with Washington, also said that China was willing to resolve the trade dispute through “calm” negotiations and opposed any increase in trade tensions.
Our sense is that volatility is likely to remain, with no overnight solutions to the China-US trade war. China will likely not relent and a question now facing global markets is if and when Trump caves and aims to strike a face-saving deal. Once again, we believe that investors who wish to protect against downside risks should allocate a portion of their overall portfolio to cash.
Stock in Focus: Auckland Airport (AIA:NZX / AIA:ASX)
Shares in Auckland International Airport (AIA) have moved lower despite releasing a sound result for the 2019 financial year, as it lifted underlying net profit after tax by +4.4% from last year to $274.7m following another record year for passenger numbers, albeit growth rates have started to weaken compared to recent years.
AIA project earnings to be flat for the coming year, as it continues to invest heavily on its infrastructure as part of its 30-year growth plan. We see AIA as a key beneficiary of the growing tourism industry, however, we still see as very expensive especially given the recent run which has been propped by income investors as opposed to business fundamentals, trading on a valuation of 41x earnings and a dividend yield of 2.4% which is now far from attractive.
We currently have a HOLD recommendation on Auckland Airport.
Members should look out for a full update on AIA to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market sold off on Monday (ASX 200 Index -1.27%) as a tit-for-tat tariff escalation over the weekend sparked a $27 billion ASX sell-off . The market's index heavyweights led the declines on Monday, including CSL, the Big Banks, and miners.
In stock news, Fortescue Metals Group's full-year profit has nearly tripled and the miner has declared a bumper dividend thanks to robust output and soaring iron ore prices amid a supply crunch. Boral warned investors its profits in 2019-20 could be up to 15% lower. The company also flagged weakness on the back of the US-China trade war, which was weighing on business confidence. G8 Education slumped 16% after lowering its full-year earnings guidance for 2019-20, citing strong competition from suppliers.
The New Zealand market started the week with a sell-off (NZX 50 Index -1.31%) as NZX shares joined a worldwide sell-off as Trump spooked investors by ratcheting his trade war with China. That weighed on the local reporting season, which saw Freightways punished for its cautious outlook.
Meridian Energy fell after reporting a record profit on high production prices, increased generation, and a growing customer book in Australia.
Metlifecare decreased after a mixed result – lifting underlying earnings 4% on robust demand for its retirement village units. It also lifted its dividend. However, the slowing property market hit listed their bottom line, with net profit after tax falling 68% on the back of less spectacular valuation rises, and some Auckland development has been paused due to a soft house price environment and material construction cost inflation.
3 Things Markets Will be Watching this Week
- Trade War related news-flow is likely to dominate headlines.
- Australasian company reporting season moves into its latter stages.
- Escalating geopolitical tensions between Hong Kong & China are also creating nervousness.
Have a Great Day,
