Global markets were lower on Friday, as the US market (S&P 500 index -0.9%) marked a second week of decline for US markets.
Investors continue to weigh the prospect of slowing economic growth, delta variant implications, and risks stemming from China. The most recent negative news flow involves the potential default of a large Chinese property developer, Evergrande (adding to concerns around COVID restrictions, regulation, and a slow-down in activity). So far the damage has been limited to Chinese stocks and debt markets (the HK market is down nearly -10% year to date). We think that the likely-hood of a broader global market sell-off driven by China is low, but clearly China sensitive segments of the market, such as the Australian mining stocks – are already feeling the pressure, with iron ore major Fortescue down -11% on Friday and another -3% this this morning.
In the US, there are also news reports that President Biden had been unable to sway Senator Manchin to support the US$3.5t budget package. All sectors were down expect for Healthcare, Materials, Utilities and Technology stocks leading losses. Mega-cap technology stocks were mostly in the red, with social media giant Facebook dropping 2.2% and Alphabet falling just shy of 2%. Apple lost 1.8%, and Microsoft slipped 1.7%. The FDA advisory committee on Friday rejected a plan to administer booster shots of Pfizer and BioNTech’s covid-19 vaccine to the general public – Pfizer fell -1.3% and BioNTech dropped -3.6%. Moderna lost -2.4%.
European Markets were down on Friday (Stoxx 600 index, -0.9%), following UK sales for the month of August falling -0.9% surprising versus the market’s expectation of a +0.5%. Miners weighed down heavily on the UK market index as iron ore slumped towards US$100.
Asian markets were actully higher on Friday, with China’s CSI 300 and Hong Kong’s Hang Seng both up +1.0% after China's central bank injected ¥90b into the economy to help calm fears surrounding property giant Evergrande Group’s debt crisis.
Aussie telecommunications giant Telstra shares were after holding a well-received T25 investor day.
Management highlighted plans to achieve strong ‘single-digit earnings growth through to the 2025 financial year. The plan is to continue its current simplicity and customer focus strategy, tilting towards growth as well as having scope for further cost cutting as nbn rollout headwinds taper off. More encouraging, it’s dividend continues to remain sustainable at 16 cents per share with room to growth modestly from 2024 onwards.
We remain BUY rated on Telstra as it offers investors a 4.1% dividend (which is attractive In the current market) plus there is added upside from the current share buyback plan, a pipeline of potential asset sell-downs (like Telstra recently executed with their Towers) and their T25 growth strategy.
Australia & New Zealand Market Movers
The Australian market down on Friday (ASX 200 index -0.8%), ending the week marginally lower.
Another slip in iron ore prices a major slowdown in Chinese demand due to government restrictions on steel output in addition to broader weakness in industrial and construction activity –weighed heavily on material sector – with Fortescue leading losses down -11.5%, while the 2 biggest players Rio Tinto (-4.7%) and BHP (+3.7%) both falling sharply.
There was broad based weakness as markets continue question economic growth, while tech and travel and tourism stocks bucked the trend ending the day higher – the latter benefitting from optimism on restrictions easing and borders reopening sooner than expected after a strong vaccine rollout.
The New Zealand market was up on Friday (NZX 50 index +1.2%) as a number of passive and managed funds completed their quarterly rebalancing – with more volume than usual being traded.
This saw some stocks make strong moves – Pushpay leading the market higher up +5.4%, followed by Kiwi Property group up +4.3%, and Vector climbing +3.9%. A number of property stocks that were added to an index also did well, with Argosy climbing +0.6%, and Precinct up +0.6%.
While other stocks which have made strong gains recently were sold off – Tourism Holding led losses down -4.1% , Briscoes Group slipped -2.2%, Mainfreight fell- 0.8% and Serko declined -0.9% to $7.80 as $17.8m of stock was traded.
Air New Zealand announced the nationwide lockdown would have a $5m to $55m impact (including wage subsidy payments) and that it has resumed calling on the Crown’s loan facility – despite this its shares were up +0.3%.
3 Things Markets will be Watching this Week
- The key global events this week will be the US Fed meeting on Wednesday.
- RBNZ Assistant Governor Hawkesby’s speech as the market considers whether there will be a 0.25% or 0.5% hike at the October 6 RBNZ meeting
- Kathmandu’s annual result, AGM’S held by AGL Energy, Mercury and Stride Property and COVID and lockdown updates both sides of the Tasman.