Global markets were higher on Friday as US markets (S&P 500 +1.6%) ended a choppy week with a technology sector rally. UK markets inched up while Europe ended slightly down.
Dip buyers appeared and traders await developments on US stimulus talks. After the close of regular trading, House Speaker Nancy Pelosi’s spokesman said she talked with Treasury Secretary Steven Mnuchin regarding a relief package, and they agreed to continue their conversation. This week sees the first 2020 US presidential debate which will be watched closely by investors.
Westpac (WBC:ASX / WBC:NZX)
Banking stocks jumped on Friday after the Australian Federal Government announced it would loosen responsible lending laws as part of its economic recovery plan.
Among the big four banks, Westpac was the strongest on Friday surging +7% after on Thursday copping a $1.3 billion penalty from AUSTRAC for breaching anti-money laundering and counter-terrorism financing laws. We think that the moves show just how cheaply the banks are trading, and moves possible on the back of positive news-flow.
We believe Westpac looks cheap when taking a medium-term view. A major assumption in our view is that there is no major property market crash (fall of over -30%) on either side of the Tasman. After being conservative and reporting a larger loss provision than bank peers, WBC's share price has been punished hard of late. While net interest margins might tighten (limiting growth) we believe they could have seen the bottom.
We rate Westpac as a BUY due to its cheap valuation and anticipated an attractive dividend to return from 2022 onwards.
Australia & New Zealand Market Movers
The Australian markets rallied on Friday (ASX 200 Index +1.5%). Financial stocks led the local stock market higher as they surged on an announcement the Australian federal government would roll back responsible lending rules. The Morrison government announced it would scrap responsible lending laws, which put the onus on banks to ensure loans were serviceable. The Australian banks welcomed the news saying it would reduce onerous regulations and encourage an easier flow of loans that could boost a recovery from the covid-19 recession.
In other stock news, Solomon Lew’s Premier Investments posted a 29% surge in full-year net profit to $137.8 million, with its Peter Alexander sleepwear chain a standout performer. But the company, which owns brands including Just Jeans, Portmans and Jay Jays, warned it would close up to 350 stores across Australia and New Zealand if landlords didn’t give enough COVID-19 rent relief.
The New Zealand market rose on Friday (NZX 50 Index +0.9%) as the financial sector contributed to a generally improved market sentiment following modest gains on Wall Street. Local lender Heartland Group made gains, which has Australian reverse mortgage operations.
Air New Zealand was unchanged after it announced it would be ready to do a capital raise before June 2021 after it completed its strategic capital structure review.
Clothing retailer Hallenstein Glasson jumped +22% as it announced it will pay a final dividend, reporting a small dip in annual profit, helped along by $5.1 million in New Zealand wage subsidies.
Gentrack Group announced earnings would beat the top end of analysts’ forecasts of about $11 million for the September 2020 financial year. But its foggy outlook failed to impress investors, shares in the company fell -7%.
3 Things Markets Will be Watching this Week
- COVID-19 related -flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
- This week sees the first 2020 US presidential debate, monthly US employment data, and US 2nd quarter economic growth (GDP) data.
- Locally, NZ business and consumer confidence data and the latest building permits data will be released along with retail sales in Australia.