Global markets continued to rally overnight on optimism over Sino-US trade talks, coupled with a rise in materials and energy shares.
As we touched on yesterday, there are hopes of an easing in trade tensions between the US and China, with a planned meeting this week between US negotiators and a Chinese delegation. Both the US and China are set to impose further tariffs on each other this month. While the outcome of talks is uncertain, we think that the recent weakness in the Chinese stock market and currency could mean that Beijing will be more accommodating when it comes to negotiations.
Closer to home, the local earnings season continues across Australia & NZ with the NZ market hitting a fresh all-time high yesterday.
Stock on Focus: Heartland Bank (HBL:NZ)
Among one of the recent stocks to have reported in NZ is Heartland Bank (HBL), which released what we saw as a mixed result.
The lender reported an 11% increase in net profit, driven by growth from its reverse mortgage business, and said it will target double-digit earnings growth again for the 2019 year. Still, the stock fell as the bank increased provisioning for bad debts.
HBL’s strategic priority is to focus on higher margin and at the same time higher risk lending relative to traditional bank lending which is dominated by property mortgages. Heartland typically reports wider margins than its larger peers focusing on consumer lending, such as auto-loans and reverse mortgages, and using online channels including peer-to-peer lender Harmoney, with its overall net interest margin at 4.42% for the year.
The risks of a slowdown in the NZ economy (which could increase the bank’s bad debts), combined with the fact that HBL looks more or less fully priced have stopped us from becoming positive on the outlook for HBL.
We currently have a HOLD recommendation on HBL.
Members should look out for a full update on HBL to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market started the week with a slight gain (ASX 200 index +0.09%) despite falls for the major banks, as mining stocks gained ground and reporting season began its busiest week. In stock news, Woolworths shares were slightly lower as it delivered a 12.5% jump in annual net profit to $1.7 billion but said supermarket sales in the new financial year have been hampered by its ban on single-use plastic bags. Fortescue Metals Group posted a -58% drop in annual profit on the back of declining prices and demand for its iron ore from China.
The New Zealand market rallied yesterday (NZX 50 index +0.62%) to a new record high, led higher by SkyCity Entertainment and Fisher & Paykel Healthcare. Interestingly, economists at ANZ released a report highlighting the growing chance of an interest rate cut by the Reserve Bank of New Zealand.
3 Things Markets Will be Watching this Week
1. Locally, investors in Australia and NZ will have a number of profit announcements to focus on as earnings season continues.
2. RBA Governor Lowe makes a speech on Tuesday, with minutes from the last Reserve Bank of Australia meeting released on the same day.
3. The annual Jackson Hole meeting of global central bankers kicks off on the weekend.
Have a Great Day,
Team
