Global markets were sharply lower overnight, with the US market (S&P 500 index, -2.0%) selling off as tech names dragged down the broader market as Treasury yields traded near three-month highs (with the US 10 year yield ay 1.56%) and lawmakers in Washington continued their budget stalemate.
Headlines focused on Congress, which must approve government funding by Friday to avoid a shutdown, and Treasury Secretary Janet Yellen warned Congress in a letter on Tuesday that lawmakers need to raise the debt limit by October 18 to avoid a government default. President Biden’s massive infrastructure plan also faces an uncertain future. While the debt ceiling and government shutdown dominated headlines, we think the real and more important driver of the pull-back has been the rise in interest rates over the past week, emphasized by the US 10 year yield in the chart below:
This sparked a broader based sell off, with all sectors down except for energy – supported by the inflation narrative pushing oil prices higher. The Tech sector was hardest hit, as their lofty valuations are sensitive to any interest rate movements, Facebook, Microsoft and Alphabet lost more than -3%, while Amazon dropped more than 2%, and large chip stocks struggled, with Nvidia sliding -4.5%.
European Markets were lower (Stoxx 600 index -2.2%) as rising bond yields hit tech stocks and concerns about slowing economic growth due to China's property downturn and power shortages hit industrials.
Auckland International Airport (AIA:NZX / AIA:ASX)
AIA shares have managed to recover strongly over the last month, trading near 6-month high’s despite the recent lockdown in Auckland restricting domestic travel – partly because Sydney airport received a higher takeover bid, supporting sentiment as well as optimism over eventual re-opening of boarders and easing restrictions in one form or another.
We expect further volatility for the stock especially at current valuation over the interim as we move through a transitory phase over the next couple of years, which will be dependent on when and how the NZ government decides to re-open borders to other countries and allow international travel to recommence at near-normal levels.
This risk is minimised slightly as AIA can also comfortably weather a delay in opening international borders due to the relatively low-cost nature of the business and supportive levels of domestic travel, helping to avoid significant cash-burn. We do not feel comfortable buying at current elevated levels which are close to pre-covid levels and we see limited upside – so maintain our HOLD rating. Patient investors may want to buy on any " price dips" that may occur with a medium-term investment horizon in mind – as near-term operating stats are likely to disappoint at current levels.
Australia & New Zealand Market Movers
The Australian market was down heavily on Tuesday (ASX 200 index -1.5%) following a weak lead from Wall street.
Losses were felt cross the board with Healthcare and Tech stocks leading sharper losses, amongst fears monetary policy would begin to tighten sooner, and bottlenecks in parts of the economy sparking inflation with central banks using what they can to control it.
Energy stocks performed strongly as the price of brent crude oil rallied to $80 per barrel for the first time since October 2018, which saw Woodside Petroleum jump +5% as well as its other oil producing peers. The price of iron also edged higher, but the miners all ended the day weaker.
Ampol is gearing up for a spending spree, with suggestions that the locally listed fuel retailer is keen on EG Group’s $2 billion-odd Australian service station portfolio, in conjunction with Z Energy takeover, which had its exclusivity period extended
The New Zealand market was down again yesterday (NZX 50 index, -0.4%) for a third consecutive session following a sharp sell-off across the Tasman and a weak lead from Wall Street.
Market heavyweight Fisher & Paykel Healthcare was down -2.6% yesterday, as other economically sensitive and property stocks traded weak in anticipation of an upcoming rate hike from the RBNZ.
Pacific Edge shares fell -3.2% after announcing it will extend its placement to retail investors aiming to raise another $20m at $1.35 per new share.
A few Agriculture stocks were stronger bucking the trend – Scales up +4%, while A2 Milk (+3.3%) and Synlait (+2.5%) both continued their recent recovery rally.
Private equity firm Pacific Equities Partners is teaming up with Green Cross Healthcare try to buy New Zealand’s largest primary healthcare group, Tamaki Health for more than $400m.
3 Things Markets will be Watching this Week
- After an eventful week for China last week, there is likely to be more focus on the latest Chinese PMI (manufacturing) data this week
- Locally, latest ANZ Business and Consumer Confidence data in NZ will be released
- Locally, financial results from Synlait Milk and NZ King Slamon, and AGM’S held by the ASX, Vector and Steel & Tube.
