INSIGHTS

MARKET SUMMARY: 13 TO 17 AUGUST

Research Team, 17 August 2018

Global markets fell in unison on Monday following the financial crisis in Turkey that saw its currency plunge to an all-time low. It remained a bumpy week for markets as trade wars persisted. However, despite the turbulence, the ASX 200 hit a fresh decade high following a recent surge in the healthcare sector. Reporting season is in full swing both in New Zealand and Australia, with a number of heavyweights reporting this week.

There are a number of disputes causing friction between the US and Turkey at the moment, including diverging interests in Syria and US objections to Ankara’s ambition to buy Russian defence systems. Turkey also detained US Pastor, Andrew Brunson. Brunson is accused of backing a coup attempt against the Turkish President in 2016, and is being tried on terrorism charges; charges he has denied. Last week Trump doubled tariffs on imports of Turkish steel and aluminium, and said they won’t remove the tariffs even if the Pastor is freed. The Trump Administration is committed to bringing Pastor Brunson home and has threatened further action if required.

The Turkish lira has been falling amid the widening rift and intensifying concerns over the state of its economy. Turkish President Tayyip Erdogan is trying to play down concerns over the falling currency, requesting citizens to "ignore campaigns against Turkey". The Turkish currency has fallen more than 40% against the greenback this year, mainly on concerns regarding the Turkish President’s increasing control over the economy. Recent data shows Turkey’s inflation rate reaching 16% last month, well above the central bank's 5% target. In an effort to deter short-selling of the national currency, Turkey’s banking regulator has said it will limit banks’ currency swap transactions and provide as much liquidity as required to the country’s banks.

Following the rift, investors flocked to the safe haven US dollar, sending the New Zealand dollar near two-and-a-half year lows. The fall in the local currency will be welcomed by many export sectors, including commodity exporters and the tourism industry.

Turning our attention to the local reporting season which is well underway, Contact Energy reported its FY18 result with net profit down 13% on the prior year. A lack of rainfall, resulting in record-low inflows into its Clutha catchment area contributed to a second successive year of below-average hydro inflows. Despite this, the company lifted its annual dividend. Meanwhile across the Tasman, CSL, the fourth largest company on the ASX, posted a 29% rise in annual net profit on new product launches and strong sales, sending shares up 6.4% to a record close. The pharmaceutical company’s result drove the Australian healthcare sector to an all-time high.

Meanwhile, Infratil and Mercury have teamed up on a buyout bid for Tilt Renewables, which owns several large wind farms in New Zealand and Australia. Their offer values Tilt at $720m, translating to a bid of $2.30 per share, which is an 8% premium to the closing price prior to the announcement. Tilt’s share price rose by 6.6% following this.

On Wednesday, the world’s biggest dairy exporter, Fonterra, announced Miles Hurrell will take over as the interim CEO with immediate effect. Hurrell is currently the COO and has been with the company since 2000. Last week Fonterra lowered its 2018 farmgate milk price to $6.70 per kg of milksolids and signalled it won’t pay a final dividend.

This week we also saw the latest monthly housing data from the Real Estate Institute of NZ (REINZ). The report saw house prices rise on an annual basis in every region in July, with the exception of Auckland. A shortage of properties available for sale across the country is said to have driven the gain. House prices on the West Coast rose 30.8% over the year, the Nelson/Marlborough/Tasman area gained 18.2%, while Bay of Plenty climbed 17.3%. The Northland, Taranaki, Nelson and Marlborough regions all reached record highs.