Global markets continued to rally overnight (S&P 500 Index +2%) as investors rushed back into technology firms on bets that the US election results will mean no major tax hikes or regulatory changes that would derail those sectors.
Investors are betting on a Republican-held Senate that would block any moves by a Joe Biden administration to tighten regulation and raise taxes on corporate America, even as the presidential election has not been officially decided – vote counting continues in four states, with Democrat Joe Biden needing to win just one to unseat President Donald Trump.
Elsewhere, the Bank of England left its policy rate unchanged at 0.1% but surprised the market with a larger than expected boost of £150bn to its bond-buying programme.
Treasury Wine Estates (TWE:ASX)
TWE was the worst performer on the ASX yesterday (-8%) following soft earnings and China’s anti-dumping investigation into Australian wine exports.
TWE has been caught up in the trade tensions between Australia and China over exports. Yesterday the winemaker said a Chinese alcohol industry group had called for retrospective tariffs on Australian wine imports and China began an anti-dumping investigation into Australian wine imports in August, which could temporarily halt wine exports to China. TWE Chairman Paul Rayner told shareholders at its annual general meeting today it was prepared for duties on its wine exports to China in a worst-case scenario.
In saying that, TWE highlighted its increasing optimism around the prospects for earnings recovery from the second half of the 2020 financial year in each of its markets outside China. In Australia and New Zealand, Treasury Wine products above the $10 price point are driving retail market growth. Its masstige portfolio is growing ahead of the market, up 21% in the quarter. The Americas region was the hardest hit by COVID-19 as a result of challenging wine market conditions and impacts to key sales channels outside of retail and e-commerce. The winemaker also said it would suspend a planned spin-off of its prized Penfolds business as it focused on overhauling its US unit.
TWE faces massive uncertainty and the political situation with China seems to be deteriorating rather than improving.
We are downgrading our rating on TWE from a High-Risk BUY to a HOLD as we have lost faith in the investment case and prospects for a near term turnaround – as we see the risks around China as too great and binary in nature. We will release a full update in our weekly report.
Australia & New Zealand Market Movers
The Australian market rallied yesterday (ASX 200 Index +1.3%) on a day of trade dominated by the US election.
National Australia Bank jumped despite seeing annual net profit fall by half because of the coronavirus recession. NAB’s result was solid and well flagged to the market, with margins and income coming in better than expected, and as it declared a better than expected final dividend of 30 cents per share.
The top risers in the ASX 200 included chicken producer Inghams on a quarterly update, as poultry volumes rose by 6.3% over the year. It said it expected feed costs to fall in the second half of the 2021 financial year. Travel agency Flight Centre jumped as it told investors at its annual general meeting that it was hopeful its corporate business would return to profit late in the 2021 financial year, and the leisure business could follow suit in 2022.
The New Zealand market was higher on Thursday (NZX 50 Index +0.5%) following positive global sentiment.
In stock news, Synlait Milk rose on the news it had closed a deal with an unnamed multinational customer. There was no dollar-figure announced. Trustpower was also a touch higher after the company trimmed its full-year earnings forecast by as much as $10 million, but the result was in-line with market expectations. Fishing firm Sanford experienced the day’s biggest fall, after a trading update said revenue was down 14% and profit dropped 46%. Social distancing, weaker sales and salmon prices had weighed on performance.
3 Things Markets Will be Watching this Week
- All eyes this week will be on the US election, with results set to start coming through around lunchtime on Wednesday (Australian time).
- COVID-19 news is back at the top of headlines with social distancing measures re-introduced in Europe.
- It will be another big week of US earnings ahead with 132 S&P 500 companies due to report including Alibaba Group, Wynn Resorts, and Berkshire Hathaway. Regionally, Westpac, CSR, Pushpay, Z Energy, Trustpower, Goodman Group and News Corp all report earnings.
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