INSIGHTS

MARKET SUMMARY: 23 TO 26 OCTOBER

Research Team, 26 October 2018

It was a turbulent week for markets across the board, as concerns about US earnings, Italian government finances and escalating trade tensions saw risk aversion return. Geopolitical tensions also grew as investors remain attuned to developments of the death of Jamal Khashoggi, a journalist killed in Saudi’s consulate in Istanbul. China’s recent stock market troubles and Britain’s efforts to exit the EU have also kept investors on their toes.

US markets saw a sharp selloff prior to the closing bell on Wednesday, erasing year-to-date gains for the S&P 500 and the Dow Jones, while the Nasdaq finished in correction territory, as the latest round of earnings failed to impress the market. The Dow Jones tumbled more than 600 points, while the Nasdaq is now 12.6% below its August high. A correction is often defined as a pullback of at least 10%. Adding to the negative sentiment was the US Commerce Department, which showed a drop in new home sales for September, which saw a drop of 5.5%.

Back home, the NZX 50 followed global peers lower and is trading back at levels last seen in May, wiping out the past five months of gains. There was also a slew of corporate announcements this week, giving local investors plenty to digest.

The Munich Regional Court found Fisher & Paykel Healthcare had breached a patent held by ResMed. The decision can be appealed to the Higher Regional Court Munich, and will be deemed invalid if an earlier appeal to the European Patent Office is upheld. The company said it will not impact the sale or supply of the affected masks. The other two patents by ResMed in Germany remain pending. F&P closed down 4.42% on the news.

Tourism Holdings (THL) announced the possible sale of some of its tourism businesses amid fears confidentiality may have been breached whilst in discussions with third parties. THL is in discussions regarding its Kiwi Experience business and some of the Discover Waitomo businesses including Black Water Rafting, Ruakuri and the Waitomo Homestead, however it was noted the Waitomo Glow Worm Cave business is not included as an asset for sale. The discussions remain incomplete and the company expects to provide more information in November or December.

Skellerup Holdings announced it delivered a record performance in FY18, with NPAT up 23%. The company expects an improvement in profitability in FY19 with increased earnings in its Industrial Division, offsetting the recent softening in international dairy markets and the uncertainty surrounding international trade. The share price remains up 13% this year.

Off the main index, SLI Systems received a takeover notice from Texas software investor, ESW Holdings. ESW has offered to acquire all SLI shares for a price of not less than 63 cents per share. The bid values SLI at over $40m, more than double the company’s market value at the close of business on Friday. Shares of SLI surged 86.7% to close at 56 cents following the announcement.

Steel and Tube was fined after making misleading representations about its steel mesh products that didn’t meet testing standards. The company was fined $1.89m on 24 charges under the Fair Trading Act, and noted the fine won’t impact financial results in the 2019 year.

Meanwhile, European markets fell to their lowest levels since late 2016 as concerns over Italy’s budget weighed on investor sentiment. The European Commission has told Italy that it must revise its budget proposal. The Commission is worried about the impact of higher spending on already high levels of debt in Italy, the eurozone's third-biggest economy. Italy's governing populist parties have vowed to push ahead with campaign promises, including a minimum income for the unemployed. The country now has three weeks to submit a new draft budget to Brussels. Meanwhile, there are mounting concerns that UK Prime Minister Theresa May could face a no-confidence vote over her handling of Brexit negotiations.

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