INSIGHTS

MARKET SUMMARY: 29 MAY – 2 JUNE

Research Team, 2 June 2017

The end of May saw most markets locking in a monthly rise. The NZX50 gained 0.54%, marking its fifth consecutive month of gains. For the year the local bourse is now 7.81% higher. Xero was the top performer for the local bourse, rising 14.94%, after a better than expected result boosted the company’s share price. Air New Zealand and the Port of Tauranga followed closely rising 12.55% and 9.25% respectively. Comvita was the weakest performer for the month falling 19.43% after the discovery of Myrtle Rust in New Zealand.

In Europe, the Stoxx 600 gained 0.75% after some political uncertainty late in the month dragged on the region. The UK’s FTSE 100 rose 4.39%, the biggest monthly gain since December. The S&P500 in the US rose 1.16% for the month, with all three of the main indices rising. The tech heavy Nasdaq rose 2.50%, its seventh month in a row of gains after a stellar performance from the tech sector over reporting season.

The Australian ASX200 bucked the global trend, falling in May by 3.37%. The financial sector was the weakest performer for the month, falling more than 9% after the Australian Federal Budget announced a new levy that would be applied to the major banks.

In corporate news, there has been a number of results as the May reporting season ends. Mainfreight was a stand out for the week delivering another solid result, as momentum continues to build for the company. Australasia was again a bright spot while the Americas segment was a notable laggard.

Summerset Group announced a retail bond offer of $75 million. The issue will be a six-year maturity. This is Summerset’s first bond issue and this is also a first for the New Zealand retirement village sector.

Outside of the main index, Orion Health Group announced a capital raising for $32.9 million, via a two-for-nine rights issue at 90c. This was announced together with its full year result, which reflected a loss of $34.2 million, due to a slowdown in sales in Europe, the Middle East and Africa.

Data was released from the ANZ’s latest business confidence index, which saw a rise to 15% from 11% in April.  Of those surveyed, 38.3% see better times ahead for their own businesses, up from 37.7 in April and well above the long run average of 28%. Businesses own expectations are often a better gauge of conditions, reflecting a largely positive sentiment in the business community.

The Reserve Bank of New Zealand released its biannual Financial Stability report this week. This is an overview of the nation’s financial systems and helps to identify risks for the economy. The May report revealed that the financial systems are working well and that tighter credit controls, specifically the loan-to-value ratio’s on house sales are beginning to take effect. The report acknowledged that the global economic outlook had improved however, pockets of political and policy uncertainty remain. Domestically, the three main risks to the economy continue to be the housing market, bank funding pressures and dairy sector indebtedness. Although the risks for these have reduced since the September review, they remain elevated.

Of the political risks, the UK’s election is imminent, taking place on June 8 – less than a week away. This has increased uncertainty for financial markets over the last couple of weeks as polls are now showing a much closer result. The incumbent Conservative Party’s lead has narrowed significantly with the average poll showing a less than 10% lead over the Labour Party. Some polls are predicting that Theresa May’s Tories will not gain enough votes to govern, which will affect Brexit negotiations. However, after pollsters got the results of the Brexit vote and the US Presidential election so wrong, many appear to be looking at alternate options for predicting how the election will play out, like betting sites.