Vaccines & Travel Bubbles | Air NZ – Back to Neutral

15 December 2020

Global markets were mixed again overnight (S&P 500 index -0.4%) as technology and small cap stocks outperformed.

Distribution of Pfizer's COVID-19 vaccine has begun in the US, but New York's mayor warned of heightened restrictions due to rising case numbers in the city, while restrictions were stepped up in parts of the UK amid reports of the spread of a new disease variant. UK health minister Hancock announced that London would move to a Level-3 lockdown from midnight Tuesday amidst an exponential rise in cases in the area.  Troublingly, Hancock said a “new variant” of Covid had been identified, adding that the WHO had been informed.  Hancock claimed it was “highly unlikely” a vaccine would not be effective against the new variant, but the news is still a fresh reminder that the battle against Covid is not over.

On a more positive note, there appeared to be modest steps forward overnight for US stimulus and a post-Brexit trade deal between the UK and EU.


Air New Zealand (AIR:NZX / AIZ:ASX)

NZ Cabinet has agreed in-principle to establishing a travel bubble with Australia within the first three months of 2021. The arrangement will depend on there being “no significant change” in the Covid-19 situation in both countries, and the bubble getting sign-off from the Australian government. This follows on from the announcement of travel to the Cook Islands from 1st quarter 2021 from NZ without having to quarantine for two weeks there, or on their return home.

While the official date is set to be announced next year after more arrangements have been made and there are still risks, our assumptions around a resumption for Tans-Tasman services may be overly pessimistic.

We are upgrading AIR back to a HOLD (was SELL) on the back of positive news-flow around COVID vaccines and re-opening of borders in 2021. However, we still expect Air New Zealand to tap shareholders for a capital raise in the near future as AIR’s latest operating stats highlight ongoing cash burn struggles.


Australia & New Zealand Market Movers

The Australian market started the week in the green (ASX 200 index +0.3%) as financial and consumer stocks helped lift the Australian share market higher. The rally was led by the relentless rise of Afterpay (+8%) as the buy now, pay later leader is set to enter the ASX 20 index when the index rebalance happens on December 21. Technology darlings Xero also hit new all-time highs yesterday as it enters the ASX 50 index.

There are mounting concerns iron ore could become the next battleground between China and Australia amid rising trade tensions, especially as the price of the steel making commodity keeps surging. The iron ore price has been strong this year as high demand from the Asian superpower combined with supply disruptions, with the world’s biggest producer, Brazil’s Vale, last week lowering its production forecasts. Marketing executives from BHP were last week questioned in a video call by China Iron and Steel Association (CISA) representatives about this month’s iron ore spike while Rio Tinto marketing executives have reportedly been called into a meeting with CISA this week.

The New Zealand market fell from a record high on Monday (NZX 50 index -0.7%) as major index stocks such as Fisher & Paykel and Auckland Airport pulled back.  

Heartland Group Holdings revealed a piece of research showing 90% of senior Australians want to remain in their home for as long as possible, but struggle to fund it. The reverse lender said, “experts believe reverse mortgages could be the solution”.

Meridian is looking to support a plan to build a huge data centre in Southland connected by two new subsea cables at a cost of ~US$500m. The Datagrid project seeks to replicate the Icelandic data centre industry which benefits from cheap renewable power. Meridian has agreed to supply the project with 100MW of power from its 800MW Manapouri scheme. Meridian could provide the 100MW while still meeting any Tiwai Point commitments. The only hyperscale data centre currently servicing NZ is based in Australia, but Southlands climate makes it 15% cheaper to power than in Australia.


3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​COVID related news flow, including vaccines are likely to dominate headlines for another week.
  2. Highlights this week include interest rate decisions from the US Federal Reserve, Band of Japan and Bank of England.
  3. The latest employment data in Australia is due on Thursday along with housing starts. Closer to home, the latest NZ migration print is due along with Q3 GDP and business confidence.


NZ Cabinet has agreed in-principle to establishing a travel bubble with Australia within the first three months of 2021. The arrangement will depend on there being “no significant change” in the Covid-19 situation in both countries, and the bubble getting

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