Turkey’s Crisis | Fonterra, James Hardie

13 August 2018

Global markets were lower on Friday, with European markets falling sharply in a wave of global selling amid concerns about a deepening economic crisis in Turkey. The US dollar continues to rally versus the Kiwi and Aussie dollars on safe-haven buying. 

Turkey’s currency, the lira, plunged 20% to record lows on Friday and European bank shares fell amid concerns about their exposure to Turkey. The drop in the lira heightened concerns related to Turkey's large holdings of foreign denominated debt (notably dollars and euros) which become harder to repay as the currency weakens. Turkey’s president remained defiant over the weekend, accusing foreign interests of waging an economic war against Turkey, pledging trade measures to reduce reliance on the dollar and US markets. US President Donald Trump upped pressure on Turkey by doubling tariffs on steel and aluminium imports from Turkey.
 

Stock on Focus: Fonterra (FSF:NZ / FSF:AX)
Fonterra Shareholders Fund units fell on Friday as management said they do not expect to pay a final dividend this year, as the company bolsters its balance sheet after paying Danone over the 2013 botulism scare and writing down its Beingmate Baby & Child Food investment.

Fonterra affirmed normalised earnings per share guidance of 25-30 cents, implying earnings of $403 million to $484 million. There will be no final dividend this year after the 10 cents per share already paid in April. Fonterra also trimmed its 2017/18 forecast farmgate milk price to $6.70 per kilogram of milk solids from $6.75/kgMS. Fonterra's new chairman, John Monaghan, said the revisions had been made with a strong balance sheet in mind.

We see this as another very disappointing update from Fonterra who continue to underdeliver following on from the profit downgrade and dividend cut a couple of months ago.

We are currently reviewing our HOLD recommendation on Fonterra.

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

 

Australia & New Zealand Market Movers

The Australian share market was lower on Friday (ASX 200 index -0.31%) although closed the week higher, with most of the market movements coming on the back of company financial results.

In stock news, James Hardie shares fell sharply after the building products supplier warned its full-year earnings were likely to fall short of analyst expectations. Profit grew 58% to $US90.6 million for the three months to June 30 on the back of strong demand from US homebuyers and a first contribution from the acquisition of building materials company Fermacell. But the company warned 2018/19 financial year profit will be between $US300m and $340m, below what the market was expecting. Management cautioned that although US housing activity has been improving, market conditions remain somewhat uncertain and some input costs remain volatile.

 

The New Zealand market rallied on Friday (NZX 50 index +0.79%) on continued market strength from the weaker Kiwi dollar, led higher by Trade Me and A2 Milk. The New Zealand dollar experienced a -2% weekly fall against the greenback after the local central bank Thursday surprised markets by pushing out a projected rate hike for another year and saying a cut was still possible.

 

3 Things Markets Will be Watching this Week

1.               US corporate earnings season moves into its latter stages.

2.               Locally, investors in Australia and NZ will have a number of profit announcements to focus on as earnings season gets into full-swing.

3.              Geopolitics, with the Turkey economic situation hitting headlines over the weekend.  

 

Have a Great Day,

Team

Global markets were lower on Friday, with European markets falling sharply in a wave of global selling amid concerns about a deepening economic crisis in Turkey. The US dollar continues to rally versus the Kiwi and Aussie dollars on safe-haven buying. 

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