Australia and New Zealand Market Movers is provided by: Australasian Trading Management.
The Australian share market sold off on Wednesday (ASX 200 index -0.68%) as the US increased tariffs on China put both the Aussie stock market and Aussie dollar under pressure. The escalating tensions between the countries sent the big financial stocks falling. Flight Centre Travel was able to lift against the market, after a report from a major broker upgraded the company’s price target.
The New Zealand market continued to drift lower yesterday (NZX 50 index -0.24%) with falls led by Synlait Milk and Infratil. On the flipside, Gentrack rebounded and Ryman Healthcare hit a new record high. Outside the benchmark index, Smartpay shares were unchanged as it raised A$7.5 million which the listed payment terminal supplier will use to fuel expansion plans across the Tasman.
Global markets were lower overnight as shares on Wall Street snapped a four-day winning streak after Washington’s threat to impose tariffs on an additional $200 billion worth of Chinese goods put fears of an escalating trade war back in the spotlight.
Asian stocks fell across the board, with the Chinese market suffering the biggest loss. The Chinese economy is seen as being hit harder than the US by a trade war which is likely to rattle Asian economies. The US has published a list detailing a further $US200 billion worth of Chinese goods that would be hit with a 10 per cent tariff. The list included consumer products such as clothing, television components and refrigerators as well as other technology products, although mobile phones were omitted. The clock now starts ticking on a two-month period of public comment before the levies are imposed.
Stock in Focus: Qantas (QAN:AX)
We have initiated research coverage on Qantas (QAN). QAN is Australia’s largest domestic and international airline with a dominant market position operating in almost a domestic duopoly. QAN has a strong brand presence with 15% market share of international flights in and out of Australia. As an airline, QAN is a clear beneficiary of our tourism boom investment theme.
The last few years have seen a successful turnaround of the business which has been through some challenging times. QAN is now a cost-efficient operator and generates superior margins relative to much of the competition. QAN management have been disciplined and have kept shareholder interests in mind – with its dividend on the rise and significant share buybacks improving returns for investors.
Given a strong share price run, QAN trades at a slight premium to peers although the valuation remains reasonable in our view at circa 10x earnings. Finally, airline investments do require a higher appetite for risk. Key risks for the stock include increased competition, and a higher oil price (jet fuel is the most important cost for an airline).
We have initiated coverage with a BUY (High-Risk) rating on Qantas.
3 Things Markets Will be Watching this Week
1. Tit for tat tariffs, particularly as retaliatory measures between the US and China continue to sway investor sentiment.
2. A number of US Federal Reserve members make speeches late in the week.
3. Closely watched US inflation data is released at the end of the week.
Australia and New Zealand Market Movers is provided by Australasian Trading Management. ATM is an independent research house covering stock analysis across major markets including the ASX, NZX and US markets. We make our research easy to understand and concise, taking complex issues and simplifying them so that you can make informed and accurate decisions. We have no conflicts of interest and our only goal is to generate positive returns for our members. We run transparent model portfolios to track performance and invest where we see the most value, in companies of all sizes across all industries, and often in smaller companies.
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