Global markets were mixed overnight, as Wall Street moved between gains & losses but ended the session lower. The market was weighed down by financial stocks as a deepened yield curve raised US recession worries, while uncertainty reigned on the progress of trade negotiations between the US and China.
Trump’s apparent de-escalation of trade tensions at the G-7 had helped ease investors nerves before Beijing questioned some of those comments. Adding to the uncertainty, Germany offered up fresh evidence that protectionism is weighing on global growth.
Volatility remains relatively high as traders reflect on previous periods of calm in the trade war that were quickly ended by surprises. As we mentioned yesterday, our sense is that volatility is likely to remain as we are late in the market cycle, with no overnight solutions to the trade war. Once again, we believe that investors who wish to protect against downside risks should allocate a portion of their overall portfolio to cash.
Stock in Focus: Tourism Holdings (THL:NZX)
Tourism Holdings shares were the best performers on the NZX yesterday, up +5% as the rental RV operator confirmed a small annual earnings beat versus guidance and said the outlook for its New Zealand and Australian businesses remained positive. Turning around the US unit remains a work in progress.
THL has spent most of the year lowering expectations, so the latest result managed to surprise the market on the upside. A stronger performance from the core business in Australasia offset by slightly higher Associate losses from the TH2 venture (now renamed “Togo”). The overall thematic for NZ tourism as evidenced by both the AIR and THL results is one of “moderating growth” as opposed to no growth. Importantly, THL also has the ability to flex its capacity to manage various changes in demand, and we think the dividend yield of 7% is attractive in a low interest rate environment.
We currently have a BUY recommendation on THL.
Members should look out for a full update on THL to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market was higher yesterday (ASX 200 Index +0.48%) as a rebound in optimism on the back of more positive news from the US-China trade war supported the ASX, recouping some of the losses from Monday's sell-off. Wesfarmers was among the market leaders after reporting a stronger-than-expected profit result. The Coles demerger, as well as sales of Bengalla coal operations, Kmart Tyre and Auto Service and Quadrant Energy, boosted the company's net profit after tax substantially, with its profit from continuing operations 13.5% higher than the previous year. Caltex Australia has reported a 54% fall in first-half profit and says its retail stores won't be able to deliver on a promise to boost earnings by up to $150 million by 2024.
The New Zealand market was in positive territory in Tuesday (NZX 50 Index +0.28%) as the demand for reliable income boosted yield stocks such as Meridian Energy and Spark New Zealand. Spark was the most traded stock as the telecommunications company rose to its highest close since spinning out Chorus in 2011. Outside the benchmark index, NZME -6% in light trading after reporting a 73% slide in first-half profit on a weaker print advertising market and one-off costs such as restructuring. The media group is also focused on reducing debt rather than paying dividends.
3 Things Markets Will be Watching this Week
- Trade War related news-flow is likely to dominate headlines.
- Australasian company reporting season moves into its latter stages.
- Escalating geopolitical tensions between Hong Kong & China are also creating nervousness.
Have a Great Day,