Global markets initially rallied then sold off late in the session overnight after a report the Trump administration is poised to expand its trade war with China.
Bloomberg reported that the US is preparing to announce by early December tariffs on all remaining Chinese imports if talks next month between presidents Donald Trump and Xi Jinping fail to ease the trade war. Also hitting tech sector sentiment was the UK government's budget which detailed plans for a precedent setting digital sales tax.
As we discussed yesterday, there does not seem to be a single catalyst for the sell-off, but a number of concerns worrying investors. Rising interest rates, and impacts of trade tensions and Chinese growth are the two big risks for markets, in our view. In terms of interest rates, we are watching US inflation data closely, and on this front US inflation data published overnight did not raise any concerns. Once again, we believe it is important for medium-term investors to remain calm in volatile periods.
Closer to home, both the ASX and NZX rebounded yesterday, and we believe there will be buying opportunities once the dust settles.
Stock in Focus: Kogan (KGN:ASX)
The big move on the ASX yesterday was online retailer Kogan, which plummeted -33%. The market darling for 2017 was one of the best performers on the ASX last year, and it is quite remarkable how quickly fortunes have changed for the high-flying tech stocks in the last 6-months.
The fall came as Kogan released a business update for the first quarter of the 2019 financial year. During the quarter the company saw revenue grow 33% on the prior corresponding period. This was driven by a 15.7% increase in Exclusive Brands revenue and a 73% lift in Partner Brands revenue. Kogan also experienced a 41.6% increase in active customers to 1,450,000.
However, offsetting this growth was a surprising 27.4% decline in Global Brands revenue. Management has blamed changes in the GST law effective from 1 July 2018 and “the now apparent avoidance of GST by a number of foreign websites selling into Australia”. Another disappointment for investors was likely a sharp increase in its costs.
We do not currently have full research coverage on Kogan, but are looking to initiate coverage in the near future.
Australia & New Zealand Market Movers
The Australian share market rallied on Monday (ASX 200 index +1.11%), as shares rebounded from 12-month lows touched in the back end of last week, with every sector on the benchmark index closing higher. The healthcare sector was the best performing sector on the market, with CSL leading gains (up 3.7%) for the index, while Mayne Pharma and ResMed also advanced strongly.
The New Zealand market started the week higher (NZX 50 index +0.55%) in lacklustre trading dominated by Spark New Zealand, which will update shareholders at this week's annual meeting on Friday. Trading was relatively subdued ahead of a busy week for US corporate earnings and a number of local annual meetings. PGG Wrightson shares were higher ahead of tomorrow's combined annual and special meeting, where investors will vote on whether to sell its seeds division. The rural services firm also said chair Alan Lai will retire effective tomorrow.
3 Things Markets Will be Watching this Week
1. US corporate earnings season for the 3rd quarter is underway, with a number of major companies set to report this week.
2. Trade related news-flow is likely to continue to feature in headlines, and important monthly US employment figures will be released at the end of the week.
3. Locally, in Australia some of the major Banks such as ANZ and Macquarie will be releasing updates.
Have a Great Day