Global markets were lower on Friday as Wall Street tumbled more than 1% on Friday as mixed corporate earnings added to worries over the impact of the coronavirus outbreak on global growth. Key US market indices erased their 2020 gains to report their worst month since August 2019
In contrast the ASX had a stellar month in January, with the Australian market index adding a gain of close to 5%. In both Australia and NZ we are moving into an interim profit result reporting season.
Investors continue to digest mixed company earnings announcements overseas. To date, 45% of the companies in the S&P 500 have reported actual results for the 4th quarter 2019. In terms of earnings, the percentage of companies reporting actual earnings above estimates (69%) is below the five-year average. In terms of sales, the percentage of companies (65%) reporting actual sales above estimates is above the five-year average. The blended earnings decline for the fourth quarter is -0.3%, which is smaller than the earnings decline of -1.8% last week. Positive earnings surprises recorded by companies in the Information Technology and Consumer Discretionary sectors, partially offset by negative earnings surprises reported by companies in the Industrials sector.
Stock in Focus: Auckland Airport (AIA:NZX / AIA:ASX)
Shares in Auckland Airport and Sydney Airport have been under pressure recently given Coronavirus concerns.
Over the weekend the NZ Government has placed immigration restrictions on all visitors who are travelling from or via mainland China for an initial 14-day period. The Ministry of Foreign Affairs and Trade has also raised its travel advice to New Zealanders for mainland China to “Do not travel”, the highest level. Direct flights from and to China represent ~8% of Auckland Airport annual international seat capacity, while Air NZ has suspended all AKL-Shanghai flights until end-March.
Given both airports are trading at the higher end of valuations there is at risk of a significant pull-back if the impacts of the corona virus are greater than what the market is currently anticipating. We are watching developments closely, but at this stage we believe the impact will only be shorter term.
We currently have a HOLD rating on Auckland Airport & a BUY on Sydney Airport.
Australia & New Zealand Market Movers
The Australian market was higher on Friday (ASX 200 Index +0.13%) ahead of February's interim profit reporting season, as the sharemarket closed down 1% for the week.
Digital healthcare and hardware business ResMed climbed to a record high after it beat analysts' expectations with quarterly earnings of $US1.21 on sales up 13% to $US736.2 million. Other blue-chip healthcare leaders shadowing record highs after advancing on Friday were Sonic Healthcare, Ramsay, Cochlear, and CSL.
The New Zealand market was a touch lower on Friday (-0.15%) after stock markets were knocked around by the global outbreak of coronavirus. A weaker kiwi dollar buoyed exporters such as Fisher & Paykel Healthcare. China’s increasing importance as an export market – accounting for 28% of New Zealand's merchandise exports in 2019 – leaves the local economy more exposed to any disruption in the world's most populous nation. NZ has moved to ban travellers from China. Travel and tourism companies have been the hardest hit by the fears over the outbreak, but stocks such as Tourism Holdings recovered as some investors are looking through the short-term weakness.
3 Things Markets Will be Watching this Week
- US earnings season continues this week.
- Coronavirus Headlines.
- The Reserve Bank of Australia makes a decision on Tuesday.
Have a Great Day,