INSIGHTS

MARKET SUMMARY: 27 NOVEMBER TO 1 DECEMBER

Libby Sharp, 1 December 2017

The NZX50 has been mixed this week, and had investors on edge as the possibility of the index logging its first monthly decline of 2017 became very real. The month has seen profit taking from some of the big winners of the year, while corporate newsflow has been a key driver for investors as the November reporting and AGM season continues.

Xero has continued to come under pressure this week and its result was one of the most noteworthy after the company announced it would be delisting from the NZX to consolidate its ASX listing. Xero’s share price has fallen more than 9% on the month, falling a further 5% this week alone. The result itself was quite positive however investors shrugged this off, choosing to concentrate on the delisting.

Ryman Healthcare was noteworthy for the opposite reason, beating expectations and giving a positive outlook. The retirement village sector has been under pressure of late as expectations for a house price slowdown increase. However, Ryman’s result showed that the company continues to execute its growth strategy well, with occupancy levels remaining well above industry standards. The share price rose above $10 for the first time ever.

The big economic event this week for the NZ market was the ANZ outlook survey. The previous two surveys had shown that confidence was falling, and many attributed it to the political uncertainty throughout the period.

However, the November survey showed further with a net 39% of those surveyed being pessimistic. All sectors surveyed were pessimistic for the coming year with agriculture the most negative, with a net 55% of those surveyed expecting worsening conditions.

The own activity index, often taken as a more accurate measure for predicting GDP, fell sharply for the month to just 6.5. This is down to levels not seen since 2009 when the GFC was in full swing. The retail sector was most pessimistic with the activity outlook index hitting -14.3. This suggests that the sector will be delaying investment spending and are unlikely to be hiring, and if anything could mean the sector will be tightening their purse strings.

Looking offshore, global markets have painted a mixed picture this month. The US has again had an exceptional time rising to fresh records during the month. The region saw further support after it was announced this month that Jerome Powell would be taking the reins of the Federal Reserve in February. Powell is largely viewed as being sympathetic to Janet Yellen’s views so the path of the Fed is likely to remain steady. The proposed tax legislation changes also passed a massive milestone, narrowly passing through a vote from the Senate Banking Committee this week.

European markets have seen a decline this month as political uncertainty continues to be at the forefront for investors. Over two months after their election, Germany is still yet to form a government. Negotiations had broken down and there were talks of the nation going back to the polls. Talks have now resumed and there is hope that a deal will be reached soon.

Meanwhile, in the UK, markets have continued to monitor the Brexit situation. Rumours have surfaced that the UK has upped its “divorce payment” to the EU, which has been a sticking point for negotiations. This sent the British pound higher which impacted the FTSE 100 causing weakness.

Oil prices had a resurgence earlier in the month, rising to multi year highs. Some of these gains were given back following the OPEC conference, as no clear decision was given over the future of oil cuts, with conflicting views given out by several of the players.