Global markets rallied on Friday, as Wall Street’s main stock indexes closed at record levels, fueled by fresh optimism over a potential calming of US-China trade tensions and by big gains in shares of healthcare companies.
Heading into the end of the year, a Xmas period rally in shares could be possible. While we would not want to attempt to read Trump’s mind, we note it is worth keeping in mind President Trump is looking to win an election next year. We think the Trump Administration may back-down somewhat in the trade dispute, in order to announce a deal – especially as it looks as if the US manufacturing sector is now starting to feel the pinch from a protracted trade war. Given proactive monetary policy and a reduction in geopolitical/trade risks of late, our base case view is the global economy will muddle its way through the current rough patch, although risks remain.
Stock in Focus: Infratil (IFT:NZX / IFT:ASX)
IFT shares have continues to climb higher as it becomes a favoured defensive holding in a low-interest rate environment. Infratil’s recently released first half result for the 2020 financial year saw operating earnings from continuing activities come in at $289.4m, up +1.7% from last year.
Over the half Infratil invested $1.4 billion, which included the acquisition of Vodafone NZ for $1,029m and remaining $332.6m invested into Infratil’s existing businesses including significant projects developed by Tilt Renewables and further expansion of Canberra Datacentres. These investments will underpin Infratil’s future earnings and long-term capital growth – with plenty of further investment in the pipeline. Cashflow from the Vodafone acquisition will be used to help fund future growth projects across Infratil’s portfolio.
Along with the acquisition, the disposals of four businesses totalling $450m were realised to not only release additional capital, but the asset sales reflect the desire to simplify Infratil’s portfolio and recognise that those activities were unlikely to grow to a material scale – we view the portfolio changes positively, as we believe there are strong tailwinds and growth potential for many of IFT’s businesses.
We currently have a BUY rating on Infratil.
Australia & New Zealand Market Movers
The Australian market rallied on Friday (+0.87%) in a broad based rally as traders bet that the country’s sluggish economy will lead to another cut in the official cash rate. Healthcare leader CSL continued to pace market gains, while the tech sector also rallied, with data centre business Next DC jumping on the back of a broker upgrade. Miners were higher following a rally in the price of iron ore, which gained on hopes of fiscal stimulus in China following weaker economic data.
The New Zealand market was a touch lower on Friday (-0.04%) as electricity companies remained under pressure as the future of the Tiwai Point smelter remains uncertain and after a weak operating update from Contact Energy. On the flipside, market index gains were led by a jump in Scales Corp.
3 Things Markets Will be Watching this Week
- Trade related news-flow will remain important in terms of driving investor sentiment.
- Minutes from the last US Federal Reserve meeting are released on Wednesday.
- Minutes from the last Reserve Bank of Australia meeting are released on Tuesday.
Have a Great Day,