Global markets fell on Friday, with the S&P 500 down -2.8% as Amazon declined -7.6%, giving back some of its amazing gains after announcing its quarterly result.
Comments from Trump reignited trade tensions between the US and China as he moves to hold China accountable for unleashing the COVID-19 pandemic. Moves included blocking a government retirement fund from investing in Chinese equities considered a national security risk. Interestingly, Warren Buffett confirmed over the weekend that Berkshire Hathaway has exited its entire airline position.
The bounce in stocks is likely to face a test in the coming weeks as investors try to gauge whether countries and US states emerging from lockdowns can do so without provoking a resurgence of coronavirus cases. At the same, time the reality of a weak global economy will likely keep markets volatile.
Telstra (TLS:ASX / TLS:NZX)
Shares of telco business Telstra (TLS) remain deflated after the covid-19 sell off, as well as the announcement of the TPG and Vodafone merger. However, we believe the Australian mobile market should be able to sustain three major players and Telstra will benefit from 5G technology roll-out.
Telstra released a promising update and expects earnings to in the lower range of their guidance as the defensive nature of their business means people are still wanting to remain connected, with weakness in a small portion of their overseas business due to bans on overseas travel.
Also, given their heavy capital investment in the past, Telstra’s capital expenditure guidance suggests there is adequate cashflow and robust balance sheet to sustain their current dividend, with the possibility of growing it once nbn headwinds have been taken into account. Telstra is now trading at a 5.2% dividend yield – which is attractive in a very low interest rate environment, and as other companies cut dividends.
Given the defensive nature of its core mobile earnings should support and help weather economic uncertainty, we feel comfortable upgrading Telstra to a BUY.
Australia & New Zealand Market Movers
The Australian market plummeted on Friday (ASX 200 Index +5%).
ResMed released a strong 3rd quarter result dominated by Ventilator demand. Chinese technology company, Tencent, has paid ~$300m for a 5% equity stake in Afterpay. The stake was accumulated on market in recent weeks at an average price of $22.63. There are reports private equity fund Oaktree Capital Management is partnering with Etihad in the competition to rescue Virgin Australia out of voluntary administration.
The New Zealand market was lower on Friday (NZX 50 -0.8%) as investors toned down the enthusiasm that drove the benchmark index's biggest monthly gain in four years in April.
SkyCity Entertainment Group fell after the company warned of new delays to the construction of the convention centre and hotel site in Auckland. Z Energy was lower as it has delayed reporting its annual result as Covid-19 triggered ongoing discussions with its lenders, requiring additional time to finalise the audited accounts. Despite the delay, Z Energy reaffirmed its earnings would be between $355m to $365m. Briscoe Group was unchanged as the retailer said the lockdown slashed quarterly sales by more than a third, despite a doubling of the firm's online trading.
3 Things Markets Will be Watching this Week
- Covid-19 and lock-down news-flow remains key in terms of market moves.
- In the US, earnings will continue to dominate headlines, with the likes of Disney and PayPal due to report results. Investors are also bracing themselves for an awful jobs report, which is likely to see the US unemployment rate surge to about 16.0%.
- Locally, the RBA meets this week, NZ employment data is due while earnings are expected from Westpac, Macquarie Group, Orica and Pushpay.
Have a Great Day,