Daily Market Insights
Global markets were higher overnight as the US share market hit new record highs on the back of positive economic data. Investor sentiment was bolstered by solid manufacturing and private employment figures in the US which saw cyclical stocks rally.
Closer to home, yesterday saw shares in Air New Zealand (AIR.NZ) jump +5% as the airline lifted its profit guidance which we discuss below.
One of our main portfolio investment themes is that the current tourism boom is set to continue, and our tourism facing stocks (including airports & airlines) have performed strongly in both Australia and NZ to date.
A weaker AUD and NZD are components to our view that tourism will continue to thrive in Australia & NZ. The effect of weakening AUD & NZD currency’s is twofold. Firstly, we expect increases from international visitors as Australian and New Zealand become relatively more attractive holiday destination compared with their global counterparts. Secondly, a lower domestic currency deters Australians and New Zealand’s traveling overseas, with a higher percentage electing to holiday locally.
Stock in Focus: Air New Zealand (AIR.NZ)
Air New Zealand was the best performer on the NZX yesterday as the airline lifted its full-year profit guidance as it benefits from lower jet fuel prices and improving revenue.
Based on the current market environment and jet fuel prices, Air NZ said its 2017 earnings before taxation are likely to exceed $525m. Air NZ had previously said they expected earnings to be between $475m to $525m.
We have noted in previous reports that while Air NZ has traded on attractive valuation metrics and benefits from our tourism investment theme, the airline industry is effected by a range of volatile factors such as the price of oil and currency moves. For now, it appears these factors continue to swing in Air NZ’s favour.
We currently have AIR rated as a High-Risk BUY, although we are reviewing our recommendation post the latest share price rally.
Members should look out for our full update on AIR to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market was higher on Thursday (ASX 200 index +0.24%) as investors bought utilities and healthcare stocks (with Healthscope shares rebounding +6%), while Wesfarmers weighed on the consumer staples sector.
In terms of stock specific news, there were announcements in the agriculture space. Agribusiness Elders announced it has completed the sale of its live export business and has completed the acquisition of horticultural business Ace Ohlsson. Live export business Wellard also announced that it will sell one of its ships for $34.9m, with the sale expected to occur in the first quarter of 2018 with the funds being used to improve the business’s working capital position.
The New Zealand market made gains yesterday (NZX 50 index +0.43%) led by Air New Zealand and Restaurant Brands New Zealand, while Intueri Education Group's shares were suspended as the company went into voluntary administration. Restaurant Brands shares jumped to a record high as the fast-food operator boosted first-quarter sales by 67% to $161.2m after expanding in Australia, Hawaii, Guam and Saipan.
3 Things Markets Will be Watching this Week
1. Whether market calm persists and if the US market hits new all-time highs.
2. Important monthly US manufacturing and employment data is released at the end of the week.
3. The Reserve Bank of New Zealand releases its financial stability report on Wednesday.
Have a Great Day,
Team