Global markets started the quarter with a sell-off, with the US markets down (S&P 500 index – 4%) after US officials reported covid-19 could kill 100,000 to 240,000 Americans, with a rough two-weeks ahead. Trump added that the economy would likely to remain shut longer than expected.
While volatility is likely to remain high, with downside market risks to be driven by extended global shut downs, it does appear the market is starting to now differentiate between the stocks and sectors which will face major problems for an extended period (e.g. retail/ tourism / airlines / property trusts), and those which are relatively immune and / or benefit e.g. healthcare.
Stock in Focus: Woolworths (WOW:ASX)
Woolworths (WOW) shares have been under pressure since the covid-19 pandemic, and like many in the market recently removed guidance for the 2020 financial year, as it has been forced to close it hotels business and is unable to predict consumer spending habits.
WOW highlight they have a strong balance sheet and that its supermarket business is continuing to perform well given the coronavirus outbreak, which should provide some support for overall the group. WOW will also defer the separation of their Endeavour drinks and hotel business until next year.
We continue to believe WOW core business will succumb to greater industry pressure, especially as supermarket industry becomes more competitive, but for the meantime is providing a reliable source of cashflow in a very challenging environment for its other businesses – although on balance this is not enough to make us more positive.
We are currently SELL rated on WOW
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Australia & New Zealand Market Movers
The Australian market was higher on Wednesday (ASX 200 index +3.6%), starting the quarter on a positive note, helped by positive manufacturing data news coming from China, which surprised and beat market estimates.
The beaten-down energy sector was the best performer with Woodside Petroleum up +7.9%, with the news that US President Trump is eager to make a deal with Russia and Saudi Arabia to elevate oil prices. The miners which are heavily reliant on China as a major consumer of their resources saw the sector gain strongly with BHP and Rio Tinto both up 4%. Interestingly,
The NZ market edged higher yesterday (NZX50 +1.3%), as investors started to buy some of the stocks that were most heavily hit, following the close of one of the worst quarters to date.
Kathmandu entered a trading halt as it announced it will be undertaking a $207m capital raise, at 50 cents per share to strengthen their balance heading into a challenging period. As with other retailer it is looking to implement heavy costs cutting measures and store closures to ensure survival.
The property sector, especially with retail exposure was down slightly as there are growing concerns about landlords inability to gather rent from impacted tenants.
3 Things Markets Will be Watching this Week
- Coronavirus related news-flow remains key in terms of driving investor sentiment.
- Moves from central banks & governments globally in response to coronavirus,
- Key economic news events this week include the latest jobless claims data in the US along with nonfarm payrolls.
Have a Great Day,
