Week Ahead, Oil to $20? | Fletcher Building

10 March 2020

Global ma​rkets​ continued to tumble on Friday​ as fears of economic damage intensified with the global tally of coronavirus cases crossing 100,000, sending investors scurrying to safe​ havens. Markets mostly shrugged off the latest US jobs report, which showed the biggest gain in nearly two years, because it only reflected conditions before the virus outbreak began snarling global supply chains and intensified across America.​ In saying that, US stocks staged a furious rally in the final hour of trading that cut in half a rout that reached -4% intra-day. 

In other news, ​crude Oil fell 10% ​on Friday,​ the biggest drop in more than five year​s. It is likely that Oil markets w​ill be punished further today as OPEC+ negotiations for output cuts broke down over the weekend, likely leading to an oil price war. Saudi Arabia fired the first shots on Saturday, slashing official selling prices. 

Once again, volatility is not expected to abate any time soon, and we think the turning point will come as growth in the number of new cases outside of China peaks. While we do not see a sustained sell-off, we think it is too early to be broadly buying in this market​. There ​is​ a view forming that the number of new virus cases is starting to level out in China ​(and Chinese stocks have held up relatively well) ​– and there is nothing to suggest that has changed​,​ but it has become apparent that it is spreading more widely outside China​.​

Stock in Focus: Fletcher Building (FBU:NZX / FBU:ASX)

​​Shares in FBU slipped with the market as concerns surrounding the coronavirus shock are creating volatility. Prior to the global outbreak, FBU shares had been climbing higher (since our last report) and jumped after reporting their 2020 first half result.

Despite reporting a weaker result, the market reacted positivity to the higher interim dividend as well as relatively upbeat guidance as their efforts to cut costs in their struggling Australian business started to be realised in the second half, with more cost benefits expected in the following year. Management guided group earnings for 2020 full year is expected to be between $515m and $565m, with earnings having a strong weighting towards the second half, with more residential settlements expected and a recovery in steel business, albeit this guidance does not take into account any coronavirus related disruption. 

Given the spread of coronavirus we believe there is still a lot more near-term volatility and possible downside risk to face the market and because of this we would hold back on new investments. Under normal conditions when coronavirus risks/uncertainty has subsided we maintain our High Risk BUY recommendation on FBU given its current valuations for medium term investors, with upside potential supported by stable construction activity in New Zealand as well as a healthy balance sheet.
We currently have a BUY (High-Risk) rating on FBU.
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Australia & New Zealand Market Movers

​The Australian market went into free-fall on Friday (ASX 200 -2.81%) with $68 billion wiped from the bourse in the last five sessions as the market failed to record two consecutive sessions higher or lower. Nearly every sector posted heavy losses, with only telcos trading slightly higher and technology, consumer discretionary and financials being the weakest performers.

The major banks were hit hard for a second week after the Reserve Bank of Australia cut rates to a new historic low of 0.5%. All four of the majors and most other lenders passed on the full quarter-percentage-point cut however brokers warned they were likely to take a significant profit hit as a result.​ ​Travel stocks were also slammed as a growing number of countries implemented travel bans and tourists delayed or cancelled trips.Investors were taking advantage of the sell-off however, snapping up some quality blue chip names at discount prices following last week's wipeout​ such as CSL, Coles, Telstra, and Transurban. Gold miners were also well supported by a flight to safer haven stocks.

​The NZ market sold-off on Friday (NZX 50 -1.85%) as New Zealand's benchmark stock index reversed the prior day’s gains with Air New Zealand leading the market lower. Auckland International Airport fell slightly, even as Qantas said it is cutting capacity over a number of routes including to Auckland.  Napier Port declined 6% after it warned of a potential slowdown in log exports due to reductions in harvesting and high log inventory levels on Chinese ports, although said it was unable to quantify how significant the impact would be, or how long adverse conditions would last.


3 Things Markets Will be Watching this Week

  1. ​​​​​​​Coronavirus related news-flow remains key in terms of driving investor sentiment.
  2. The European Central Bank holds a meeting on Thursday.
  3. Closer to home Aussie business and consumer confidence will be of interest while in NZ we have REINZ house sales on Tuesday.

Have a Great Day,


Global ma​rkets​ continued to tumble on Friday​ as fears of economic damage intensified with the global tally of coronavirus cases crossing 100,000, sending investors scurrying to safe​ havens. Markets mostly shrugged off the latest US jobs report, which

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