September Sell Off | New Zealand King Salmon

4 October 2021

Global markets were mixed overnight, with the US market (S&P 500 index -1.2%) down for the session, wrapping up the month down -4.8%, its worse month since March 2020. 

Closer to home, the Australian market (ASX 200) ended the month down -2.7%, while the NZ market (NZX 50) was actually up +0.4%, outperforming global markets. The NZ market is only up +1.4% year to date and has underperformed in 2021 versus global market – hence we expect that this thematic of NZ outperformance during any period of global risk unwind to continue.

Overnight selling was broad based with all sectors in the green as investors concerns regarding growth and inflation emerged, and a weekly jobless claims coming in higher than expected didn’t help the cause. The dip came even as Washington tensions eased as the Senate passed a stopgap funding bill to avert a government shutdown for two months, and House Speaker Nancy Pelosi implied that things are looking good for passing the US$1 trillion infrastructure bill.

Discretionary retailers were hit hardest after Bed Bath & Beyond announced a weak result and guidance as shoppers stayed away due to the resurgence in covid-19, and supply chain problems and inflation causing problems – causing the stock to slump -23.5%.

European Markets (Stoxx 600 index, +0.2%) were up overnight, with the index ending the month down -3.2% ending its 7-month winning streak.

New Zealand King Salmon (NZK:NZX / NZK:ASX)

New Zealand King Salmon shares were up +3.5% yesterday (and another +2% this morning) after releasing their 2021 half year result which come up better than expected helped by reopening of restaurants in the US and recovery in fish size. NZK is still in a challenging situation with the first four months operating in a loss, with demand gradually recovering shipping costs still suborning high. 

More importantly, management appear cautiously optimistic about their consent hearing for Blue Endeavour to shift farming operations to cooler/open water by mid-October.  

We remain BUY rated on NZ King Salmon and mindful of past agriculture related risks but see a positive risk/reward trade off at current valuations and welcome the prospect of normalised operating conditions – should they be able to receive consent for open ocean farming to increase supply will be more upside for the stock at the current juncture, in our view.

Australia & New Zealand Market Movers

The Australian market rebounded strongly on Thursday (ASX 200 index +1.9%) to record its best single day gain this year, to end the challenging month down -2.7%.

All sectors were in the green, with Miners, Healthcare and Financials performing strongly. Consumer staples also performed strongly, with supermarkets Coles up +2.2% and Woolworths +2.8% despite risks that a number of their stores in Melbourne could be closed as staff are forced to isolate.

Jb-HiFi rose +3% after reining a broker upgrade, while Zip Co rose +1.3% after inking a deal with Microsoft to integrate its technology for those shopping on Microsoft edge.

The New Zealand market was up yesterday (NZX 50 index +1.2%) recovering the weeks loss on higher than usual volume as investors rebalanced their portfolios at quarter end. 

The strong rebound ignored the fact that the NZ 10-year bond yield rose above 2%, for the first time since 2019. Dual listed companies performing strongly – A2 Milk Company (+4.3%), Pacific Edge (+3.4%), Fisher and Paykel Healthcare (+2.4%), Auckland International Airport (+1.8%) and Westpac Bank (+3.4%).

Retirement villages were generally stronger, with sentiment supported by Summerset announcing its acquired its fifth site in Melbourne, and Arvida announcing a solid second quarter sales update and acquisition of two greenfield development sites. 

Gentrack shares surged +20% after the out-of-favour software company upgraded its revenue guidance. 

3 Things Markets will be Watching this Week

  1. After an eventful week for China last week, there is likely to be more focus on the latest Chinese PMI (manufacturing) data this week
  2. ​Locally, latest ANZ Business and Consumer Confidence data in NZ will be released
  3. Locally, financial results from Synlait Milk and NZ King Slamon, and AGM’S held by the ASX, Vector and Steel & Tube.
Global markets were mixed overnight, with the US market (S&P 500 index -1.2%) down for the session, wrapping up the month down -4.8%, its worse month since March 2020.

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