Global markets rallied overnight, with the US Tech sector leading gains, as the major US indices were up well over +2%.
Stocks rose higher after Federal Reserve Chairman Jerome Powell said that the gradual interest-rate hikes are meant to balance risks as it tries to keep the economy on track. The US dollar also plummeted as Powell’s comments were seen as signalling a slowing in interest rate hikes that have buoyed the greenback this year.
As we have discussed in the past, apart from a US-China trade war, rapidly higher interest rates driven out of the US are the key risk for stock markets and could potentially end what has been a 9-year bull market for shares. We continue to watch developments closely.
Stock in Focus: Metro Performance Glass (MPG:NZX / MPP:ASX)
Beaten up shares in MPG rebounded +10% yesterday as it emerged that US private equity firm Bain Capital has bought a 9.4% stake in MPG when it was trading at 40 cents per share, while Devon Funds also increased their stake. Bain Capital are known to target distressed assets and are familiar with Metro Glass having sold shares in the 2014 IPO.
Shares in MPG have tumbled as a large new entrant into the NZ market is likely to emerge in the next 18 months, and secondly due to a poor 2019 first half result (profit down -22%). MPG’s share price currently reflects a lot of negativity given weaker earnings guidance, continued poor operating performance/execution, and risks from a building downturn and increased competition.
The new CEO has just joined and if MPG are able to make progress internally to stabilise & improve operational efficiencies (especially in Australia), we continue to believe there is potential for a turnaround. MPG’s current debt levels are high, and we see the move to pay down debt and pause the dividend by management as prudent.
We currently have a BUY (High-Risk) recommendation on MPG
Australia & New Zealand Market Movers
The Australian share market ended Wednesday’s session a touch lower (ASX 200 index -0.06%) as losses from the major materials stocks pushed the market into the red. The major mining stocks such as BHP, Rio Tinto, South 32, and Newcrest all weighed on the market as metal prices slid across the board. AMP fell after acting chief executive Mike Wilkins faced the royal commission. Commissioner Kenneth Hayne challenged the company's vertically integrated business model, suggesting the whole point of vertical integration is to enrich the company, not to act in the best interest of customers.
The New Zealand market rallied on Wednesday (NZX 50 index +0.46%), with gains led by A2 Milk and Pushpay, which followed positive sentiment towards technology stocks in Australia. In stock news, Tower shares fell after delaying its plans to resume dividend payments until the next financial year. The insurer narrowed its annual loss, although increased claims weighed on its underlying earnings.
3 Things Markets Will be Watching this Week
- Trade relations between China and the US with the G20 summit talks at the end of the week.
- US Inflation and GDP data is published late in the week, with Fed Chair Jerome Powell also set to make a speech.
- The Reserve Bank of NZ releases its financial stability report on Wednesday.
Have a Great Day,
Team