Global markets were slightly lower on Friday although losses were not as bad as initial concerns over an escalating trade dispute between the United States and China. US President Donald Trump unveiled an initial list of strategically important goods that would be subject to a 25% tariff effective July 6, a move China’s Commerce Ministry called “a threat to China’s economic interest and security.”
Investors will be watching the widening trade dispute between the US and China this week. It is a relatively quiet week in terms of events, as this week also sees OPEC and its oil allies meet in Vienna on Friday and Saturday to review their production agreement.
The price of oil appears to have halted its strong run made since late last year with prices pulling back over the last month. Several prominent analysts remain bullish on oil, believing it could still rise to $100 a barrel. Reasons to be bullish oil include sanctions by the US on Iran, new build of refineries, solid global growth supporting demand, and issues around the fragility of Venezuelan oil production. Another important factor is that Saudi wants a high oil price given their intention to partially list state owned oil giant Saudi Aramco. Part of the recent pullback has been attributed to the potential for Saudi to increase output given it has delayed the listing of the Saudi Aramco IPO.
Stock in Focus: BHP Billiton (BHP:AX)
We have been positive on mining giant BHP Billiton for some time now and it has performed very well, more than doubling since commodity prices crashed at the start off 2016.
BHP is a diverse commodity play, and provides investors with an exposure to the energy/oil sector as well iron ore, steel, copper, gold etc. There have been reports that BHP is looking to unload its US shale assets and is currently exploring several options for the oil and gas properties, including splitting them up into different packages or unloading them in one transaction.
While still early in the sales process, BHP has reportedly received several multibillion-dollar bids from big-oil giants including BP, Royal Dutch Shell, and Chevron. Given the size of the portfolio and the bidders, the sales process could have an impact on the oil patch going forward – BHP values its shale unit at $14 billion, though would-be buyers seem to have made lower initial bids for the entire business, valuing it between $7 billion and $9 billion.
We see BHP as a solid portfolio holding to gain exposure to the commodity space, particularly late in the economic cycle when commodity prices usually rise with inflation.
We currently have a BUY recommendation on BHP.
Members should look out for a full update on BHP to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market rallied on Friday (ASX 200 index +1.29%) as the ASX 200 index recorded its biggest advance in a single session since July last year. The big market mover last week was Telstra, which rebounded from a month's worth of losses this week (up 6.% to record its best weekly result this year). Several brokers appear much more optimistic on the telco which has been under extreme pressure, its strategy day this week will be watched closely with announcements of cost savings and new product bundling initiatives expected.
The New Zealand market was higher on Friday (NZX 50 index +0.30%) as NZ shares hit a fresh record in busy trading. Gains were led by Synlait Milk and A2 Milk while investors took profits on Freightways and Ryman Healthcare. In stock news, PGG Wrightson dropped as it reaffirmed its forecast for annual earnings between $65 million to $70 million, saying weaker performance from its Australian and South American businesses would be offset by better trading in New Zealand. This was in line with its prior forecasts.
3 Things Markets Will be Watching this Week
1. Investors will be watching the widening trade dispute between the US and China.
2. Minutes from the last Reserve Bank of Australia meeting are released on Tuesday, while NZ economic growth (GDP) data is published on Thursday.
3. OPEC and its oil allies meet in Vienna this Friday and Saturday to review their production agreement..
Have a Great Day,
Team
