Tariff Hit “Better” than Expected | Kathmandu

19 September 2018

Global markets were higher overnight as Wall Street bounced back, led by gains in consumer discretionary, technology and industrial stocks as investors shrugged off escalating trade rhetoric between the United States and China.

News that the Trump administration will impose "just" a 10% tariff in its third-round trade battle with China was lower than the potential 25% hit. China's response was more muted too, with Beijing adding $60 billion of US products to its import tariff list in retaliation. Investors judged the latest tit-for-tat tariffs between the United States and China as less damaging than expected, and also may indicate that the tariff news is now being fairly reflected in market prices.


Stock on Focus: Kathmandu (KMD:NZ / KMD:AX)
In stock news yesterday, retailer Kathmandu rose after reporting a 33% increase in annual profit, as expected. The retailer also outlined plans for a dual-brand strategy in expanding in the US and Europe.

Kathmandu had a record year for sales, profit, operating cash flow and full-year dividend pay-out on the back of improved promotional execution, digital content, and an enhanced in-store customer experience. Sales increased by 11.7% to NZ$497.4m with growth supported by the success of key product groups, with impressive sales growth of 9.6% in Australia.

While this was no doubt a solid result, as we have discussed previously we believe the share price rally in recent times now reflects the positive news. Further, as a backdrop, we still see a challenging retail climate across Australia & NZ (particularly with Amazon and other major retail players arriving into Australia).

We are currently have a HOLD recommendation on Kathmandu.

Members should look out for a full update on Kathmandu to be released in our weekly report.


Australia & New Zealand Market Movers

The Australian share market was lower on Tuesday (ASX 200 index +0.32%) as the announcement of further tariffs on China hit major materials and energy stocks. Monday's sell-off of aged care stocks prompted some investors to increase their positions, betting that the industry may be oversold after news of the Royal Commission inquiry into the sector. In stock news, TPG Telecom reported a 4.6% drop in full-year profit to $396.9 million after the NBN hit broadband margins and home phone revenue.


The New Zealand market made gains yesterday (NZX 50 index +0.48%) with the power generator stocks leading the market higher. The power companies were still likely benefiting from last week's electricity price review paper, which allayed fears of government intervention. In stock announcements, Arvida Group shares were higher after the retirement village operator said there wasn't much spill-over yet from the cooling property market with resale margins still widening.


3 Things Markets Will be Watching this Week

1.             Trade is expected to be a keen focus this week as Trump directed advisers to proceed with plans to impose tariffs on $US200 billion of Chinese goods even as the US opened the door to further talks with China.

2.             Minutes from the last RBA meeting are published on Tuesday.

3.             NZ economic growth (GDP) data is released on Thursday.  


Have a Great Day,


Global markets were higher overnight as Wall Street bounced back, as investors shrugged off escalating trade rhetoric between the United States and China.

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