INSIGHTS

MARKET SUMMARY: 27 TO 31 AUGUST

Research Team, 31 August 2018

Markets showed no signs of slowing down this week, with the local bourse closing above 9,300 for the first time - despite the exchange being closed for most of Tuesday following a technical glitch. Playing catch-up on Wednesday, the index jumped 1.6%, marking its biggest gain since Trump’s election. Within the index, Synlait Milk, Fisher & Paykel Healthcare, Scales and Delegat all closed at all-time highs, while Auckland Airport and Trade Me hit 52 week highs.

The NZX 50 wasn’t the only index to reach a new high. In the US, the S&P 500 and the Nasdaq Composite both beat records on news that the United States and Mexico had struck a deal over the future of the North American Free Trade Agreement (NAFTA), after months of negotiations between the two countries. The new agreement, which Trump has called ‘The United States-Mexico Trade Agreement’, is expected to last 16 years and will be reviewed every six years pending its approval by Congress. Despite the development with Mexico, trade will remain at the forefront, as negotiations with Canada, China and Europe are yet to be negotiated.

A surge in tech shares also bolstered the US indices, with Apple and Amazon rising to an all-time highs. Additionally, business confidence in the US reached an 18 year high during the month of August.

Back home, business confidence fell further this week, dropping a further 5 points to a net 50% of respondents reporting they expect general business conditions to deteriorate in the year ahead. Business confidence is at decade lows since the Labour Party took the helm in October. In a bid to encourage optimism, Prime Minister Jacinda Ardern announced the formation of the Business Advisory Council, led by Air New Zealand CEO Christopher Luxon. Luxon is set to advise Ardern on major issues facing the economy with the hopes of building a closer relationship between business and confidence.

The local reporting season came to an end this week. Apple grower, Scales, reaffirmed operating earnings guidance of between $58m and $65m and said it expects to be at the top end of that range. The company reported a 9% increase in total own grown export volumes at Mr Apple, after the challenging season in 2017. Managing Director Andy Borland said the company continued to benefit from ongoing investment in the Middle East and China markets and strong demand from Europe, delivering an overall increase in apple prices. However, he anticipates some softening of demand for the conclusion of the season.

Tourism Holdings saw its share price drop following its full year result. Net profit came in at the lower end of guidance and the company pointed to a change in strategy with a focus on offshore opportunities. Meanwhile, Port of Tauranga posted record annual earnings driven by increased volumes across all major cargo categories. Export logs were up 14.3% in volume, while dairy products were up by 4.0%. Looking ahead, the company said it plans for further expansion in capacity.

Pay TV operator, Sky TV saw its share price drop this week following its result last Friday. The embattled company reported a 2.6% increase in underlying profit but announced an impairment of goodwill and lost a further 50,000 subscribers.

Z Energy announced it will acquire a 70.1% shareholding in Flick Energy for $46m. Flick Energy was the first power company in the country to offer customers wholesale prices for electricity. The investment brings together an electricity industry disruptor and NZ’s largest transport energy company.

Without doubt, Synlait was the best performer on the index this week, with its share price up 14% (at the time of writing). Last week the company confirmed that both of its major capital projects remain on track and are forecast to be completed on time, and on budget. The a2 Milk Company, Synlait’s main customer, also logged strong gains this week following some recent weakness.