Wall Street Rout Resumes | RBA, Wesfarmers

5 December 2018

Global markets sold off heavily overnight, as investor sentiment flipped with the US markets down over -3% this morning. A decline in longer term US bond yields set off warning lights about potentially slowing US economic growth, while there was also scepticism over the chances of a breakthrough in US-China trade talks.

While there was no clear trigger for the sell-off, investor sentiment remains fickle to say the least.  Trade tensions are helping in rattling investors over the past couple of months, with concern mounting that global growth is slowing at the same time central banks pull back support. Hedge funds have turned cautious on the biggest technology names that have led the record bull run, and retail investors have reportedly raised cash at the fastest pace in three years.

Once again, we believe it is important for medium-term investors to remain calm during periods of heightened volatility. While we do believe there will be buying opportunities across Australia & NZ once the dust settles, investors who wish to protect against downside moves may want to build cash positions.

Expect another wild trading session for the local markets today.


Stock in Focus: Wesfarmers (WES:ASX)

Shares in conglomerate WES have been revalued after the retail conglomerates successful demerger of its supermarket business Coles, which is now an ASX 20 stock in its own right.

Wesfarmers looks to be a much better business without Coles in our opinion, as headwinds facing the Australian Supermarket industry had weighed down on Wesfarmers performance over the last few years, and are expected to tighten earnings going forward as the market remains competitive. The disposal of businesses frees up a lot of capital for Wesfarmers to invest and drive growth in their existing portfolio of businesses as well as making relevant value add acquisitions. 

However, we still believe their new portfolio of retailers will not provide enough upside to justify changing our recommendation. We also anticipate star performer Bunnings AUS/NZ (which is now the main business unit) will begin to lose steam with property markets entering a cooling period

We currently have a HOLD recommendation on Wesfarmers.


Australia & New Zealand Market Movers

The Australian share market gave back gains yesterday (ASX 200 index -1.01%) as the positive sentiment from the trade truce brokered at the G20 summit dissipated. Major banks led the market losses on Tuesday as the RBA kept rates on hold for a record 28th consecutive month. The more defensive real estate, infrastructure and gold mining stocks led the market gains on Tuesday with some modest rises.


The New Zealand market was slightly lower on Tuesday (NZX 50 index -0.12%) as shares snapped five days of gains as optimism over the cooling of US-China tensions abated. Z Energy fell after acknowledging the government-ordered market study into transport fuels. Outside the benchmark index, Delegat Group was unchanged after affirming guidance for an 8% increase in global wine sales and a 12% rise in operating profit.


3 Things Markets Will be Watching this Week

  1. Several US Fed members make speeches this week, with Chair Jerome Powell set to make another speech on Friday.
  2. The Reserve Bank of Australia makes an interest rate decision on Tuesday.
  3. There is an OPEC meeting later in the week, which will be interesting given the recent drop in the oil price.


Have a Great Day

Global markets sold off heavily overnight, as investor sentiment flipped with the US markets down over -3% this morning.

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