Global markets continued their wild ride on Friday, as shares on Wall Street swung between large gains and losses. The implosion of risk appetite is triggering a sell-off across different assets, as markets start to grapple with the end of easy money and the return of volatility. Even with Friday's gains, the US benchmark S&P 500 index fell -5.2% for the week, its biggest weekly percentage drop since January 2016.
For the week ahead, all eyes will be on monthly US inflation data which will be released Thursday morning (AU/NZ time). Inflation in the US is seen as the trigger for the market sell-off, as higher inflation numbers will lead to rising interest rates (which is negative for share markets).
Local markets have not been immune to global moves, as the ASX fell -4.6% last week (the weakest weekly performance since fears of China's economic stability overtook markets almost exactly two years ago), while the NZX recorded a -3.7% decline for the week. As we touched on last week, we believe it is important for investors to remain calm during periods of heightened volatility, and there are likely to be buying opportunities thrown up once the market settles.
Stock in Focus: SkyCity Entertainment (SKC:NZ / SKC:AX)
While most shares were in negative territory on Friday, shares in SKC were higher as the casino operator reported solid profit figures for the fist half of its 2018 financial year.
SkyCity reported a 12% gain in first-half profit on a recovery in its international business (VIP). Normalised revenue came in at NZ$545 million, up 3.6% on the same period last year. The main driver of this growth was the SKC Auckland business and its VIP segment, while all of the company’s other sites posted revenue growth except for the Darwin business, which saw revenue fall -0.4% due to competitive pressures. SKC have not ruled out the sale of underperforming Australian assets.
Looking ahead, management believes the company is on-track to deliver modest growth in operating earnings for the full year. SKC has pointed to growth in combined NZ properties, improved performance in combined Australian properties, and on-going recovery in VIP as the key drivers of second-half growth. Management also indicated that forward bookings for the Chinese New Year period have been positive. We have held a positive view on SKC as a beneficiary of our tourism boom investment theme.
We currently have a BUY rating on SKC.
Members should look out for a full update on SKC to be released in Wednesday’s weekly report.
Australia & New Zealand Market Movers
The Australian share market was lower on Friday (ASX 200 index -0.89%) ending its worst week since January 2016 as the global equities rout resumed in the aftermath of a correction on Wall Street and amid savage selling in Asian stocks. In stock news, shares in retailer Myer plummeted as it revealed its January stocktake sale flopped, with sales for the month down -6.5% compared to last year.
The New Zealand market continued to sell-off on Friday (NZX 50 index -1.04%) following global moves. The NZ market recorded a -3.7% weekly decline as investors adjust to increased volatility and rising global bond yields that are undermining equity markets that have been at record highs. SkyCity Entertainment Group gained after kicking off earnings season and Scales Corp fell.
3 Things Markets Will be Watching this Week
1. Local AU/NZ company profts as the earnings season continues.
2. US earnings season moves into its latter stages.
3. Closely watched US inflation data will be released Thursday morning (AU/NZ time).
Have a Great Day,
Team