Week Ahead | NZ King Salmon Update

16 September 2020

Global markets were mixed on Friday (S&P 500 Index +0.05%) although US technology stocks continued to slide in a volatile session which ended with US markets little changed. The Nasdaq 100 tech index fell for the fifth time in seven days to cap its worst week since March and is down -11% from its Sept 2 record.

In other news, the University of Oxford and AstraZeneca Plc have restarted a UK trial of an experimental Covid-19 vaccine following an independent review of the safety data. As we discussed on Friday, Vaccine newsflow as we head into the 4th quarter of the year remains key. With massive amounts of resources invested towards finding a vaccine there seem to be about 7 in late stage trials. Markets will likely react positively and negatively as vaccine news is released.

At the same time there are still plenty of short term risk events that could unsettle markets over the coming months, including the US election, the rising risk of a no deal Brexit and a possible slowdown in US growth amidst the fiscal stalemate.

For the week ahead, the key event this week is the US Federal Reserve’s latest interest rate decision, which will be followed by Fed Chair Powell’s news conference.


NZ King Salmon (NZK:NZX / NZK:ASX)

NZK shares have edged lower after delivering a weaker than expected result for the 2020 financial year, coming in on the bottom end of guidance. The result reflected the lingering effects of a challenging 2019 season as well as slow recovery in demand for food service segment after being impacted by covid-19.​ ​Assuming a hit to earnings due to the extended impacts of covid-19 over the 2021 financial year and a return to near-normal economy economic activity early next year, we feel comfortable maintaining our High-Risk BUY recommendation on NZK. We believe the market is pricing in a challenging 2021 and we see upside potential over the medium-term, assuming normal weather conditions.

NZK has a premium product with strong demand, and harvest supply risks look to be lower and now well understood by the market. We remain mindful of past agriculture related risks but see a positive risk/reward trade off at current valuation and welcome potentially better operating conditions.

We have a High Risk BUY rating on NZK. Members can login to read the full report

Australia & New Zealand Market Movers

The Australian market was in the red on Friday (-0.8%) falling to its lowest level in 2 months. Most sectors fell, with energy (-1.7%) and technology (-1.4%) the weakest performers.

Rio Tinto shares were a bit lower as the company bowed to pressure to dump its CEO and two senior executives, for destroying ancient rock shelters in Western Australia, earlier this year. Its chief executive, Jean-Sebastian Jacques, will leave the role by "mutual agreement" by March 31, or earlier if his replacement is found before then. 
In other news, the Victoria Jobs Minister has outlined the majority of the $3bn stimulus package unveiled by the Andrews government will go to hospitality, retail, accommodation and tourism operators. He flagged additional support for sole traders in the coming weeks and months.

The New Zealand market was lower on Friday (NZX50 Index -0.5%) as investors took profits from well performing stocks after US tech stocks continued to decline on Wall Street.

Property and retirement stocks outperformed after the Real Estate Institute of New Zealand data showed strong growth in house prices. REINZ data shows house prices in August set a new national median record of $675,000 vs $580,000 last year. Auckland’s median price rose 16% to $950,000. 
For Kiwi Property Group, Sylvia Park is set to expand on 15 Oct, once it opens its 20,000sqm retail extension. The level one extension, The Galleria, will house an additional 60 shops and has cost KPG $277m. The expansion will also include a dining precinct, The Terrace, and will take the total number of shops to 250

3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​​COVID-19 related -flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
  2. The key event this week is the US Federal Reserve Interest rate decision, which will be followed by Fed Chair Powell’s news conference.
  3. Locally, NZ’s Q2 GDP data and Australia’s latest employment data are both due on Thursday.
Global markets were mixed on Friday (S&P 500 Index +0.05%) although US technology stocks continued to slide in a volatile session which ended with US markets little changed.

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