Global markets were lower on Friday, as developments around a probe into Russia’s alleged involvement in the US election saw markets sell-off, while progress on a tax bill in Congress saw markets claw back losses. Interestingly, after some time, political risks are once again having an impact on markets.
For the week ahead, in the US employment data will be closely watched at the end of the week, particularly in terms of its implications for interest rate moves. Closer to home, in Australia the RBA makes its final interest rate decision for the year tomorrow, and on Wednesday 3rd quarter Australian economic growth (GDP) figures are released.
Stock in Focus: Fonterra Shareholders Fund (FSF:NZ / FSF:AX)
FSF shares were slightly higher on Friday as it cut its forecast for 2018 earnings per share after an arbitration tribunal in Singapore ruled it must pay 105 million euros ($183 million) to Danone in the wake of 2013's whey protein recall.
The award for recall costs suffered by Danone comes after the French company launched arbitration proceedings in Singapore and a legal suit in the New Zealand High Court, estimating the cost of recalling the whey protein concentrate to be about 350 million euros. Fonterra had assessed the potential financial implications of the decision and made "a prudent decision to revise its forecast earnings per share range for the 2017/18 financial year to 35 to 45 cents, down from 45 to 55 cents," the company said.
While the headline looks bad, judging by the share price reaction it appears as if the market is showing signs of relief, as the issue has acted as an overhang on the share price for some time now. Looking at the positives there is now certainty as to the amount FSF is liable for, and the amount was not at the upper end that some in the market were expecting.
We have held a positive view on FSF as a medium-term exposure to the “dining boom” investment thematic, particularly given forecast global demand for high quality dairy.
We currently have a BUY rating on FSF.
Members should look out for a full update on FSF to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market made gains on Friday (ASX 200 index +0.33%) ending the week on an upbeat note, with investors buying into energy stocks after a dramatic week that included the news of a royal commission into the financial sector. In stock news, Telstra has cut its full-year guidance for earnings and revenue, blaming the temporary suspension of the national broadband network HFC rollout by NBN Co for impacting its financials.
The New Zealand market was slightly higher on Friday (NZX 50 index +0.02%) with activity quieter following Thursday’s $1.48 billion in turnover on MSCI reweighting, and market attention focussed on Fonterra after the company lost an arbitration battle with Danone. In other stock news, Hallenstein Glasson Holdings rose after it said its clothing retail chains had traded strongly so far this summer, with increased sales and margins.
3 Things Markets Will be Watching this Week
1. The Reserve Bank of Australia makes its last interest rate decision of the year on Tuesday.
2. Australian GDP data for the 3rd quarter is released on Wednesday.
3. Closely monitored monthly US employment data is published at the end of the week.
Have a Great Day,
Team