Business & Investing: Facebook and Amazon, among others, see sales growth slowing and China’s crackdown on its own firms causes concern
Two big themes dominated global equity markets last week, taking investors by surprise: slowing global growth and China’s regulatory crackdown on a range of businesses.
Data released last week showed the US economy grew at a weaker than expected annualised rate of 6.5 per cent in the three months to June, as labour shortages and supply chain disruptions caused by coronavirus continue to act as a handbrake on economic growth.
Both Amazon and Facebook warned of slowing sales growth after reporting better than expected quarterly earnings results. The issue highlights a potential headwind for companies that saw significant growth during the pandemic who may see shifts in revenue as consumers move away from online to in-person services as Covid restrictions begin to ease.
Meanwhile, China’s regulatory assault on large tech businesses has sparked fears of a broader crackdown on privately owned companies.
Locally, the NZ sharemarket also dealt with jitters of its own as a2 Milk’s share price plunged almost 13 percent last week wiping out more than 60 percent of its gains since May. The sharp sell-off followed concerns it too could be caught up in the crosshairs of China’s regulatory crackdown on foreign companies and fears that the growing numbers of Delta infections that has resulted in extended lockdowns in Australia could further impact its already fragile daigou trade. a2 Milk will report its full year results to June later this month.
Shares in Z Energy gained 5.4 percent for the week, briefly trading above $3 for the first time since January, on speculation it’s a potential takeover target as a result of its depressed share price. Mainfreight shares pushed above $80 hitting a new all-time high of $84.95 intraday on Friday after an upbeat outlook at the company’s AGM. Its shares are now up almost 20 percent year-to-date making it one of the local markets best performers. On the flip side, Ryman Healthcare, which saw its shares hit a 12 month low of $12.50 last week ahead of its AGM, managed to recover some ground by Friday’s close after investors were reassured by the company’s positive outlook. Its shares closed at $13.18, though year to date they have fallen almost 15 percent.
In the US the S&P500 index finished the week down 0.4 percent at 4,395, the NZX50 lost 1.1 percent to close at 12,595, just a few points above its low for the month, while Australia’s ASX200 index was little changed for the week at 7,392 despite no respite in new Covid-19 infections in New South Wales that will likely prolong the state’s lockdown.
The weaker outlook on global equity markets saw a modest rally in safe haven assets such as US government debt, taking the yield on the 10-year Treasury, which moves inversely to its price, down 4.7 percentage points for the week to 1.23 per cent. For the month of July yields fell almost 16 percent, their biggest fall since March.
The US Federal Reserve, which has bought about US$120bn of bonds each month throughout the pandemic to keep borrowing costs low for households and businesses, said last week that the economy was making “progress”, but it remained too early to tighten monetary policy. The announcement lead to speculation the central bank may not ‘taper’ its bond buying programme in the coming months as had previously been speculated leading to the fall in yields.
On commodity markets Brent Crude oil futures gained 1.3 percent for the week to US$75.15 a barrel while gold edged up 0.6 percent to US$1813 ounce.
Bitcoin was the big mover of the week surging almost 20 percent after struggling in recent months. Investors aggressively pushed the cryptocurrency higher last week after online retail giant Amazon confirmed it was looking to add a digital currency and blockchain expert to its payments team, suggesting it could be taking a closer look at bitcoin and other cryptocurrencies. However, the company later clarified its position saying that while it was interested in exploring alternative payment systems, the speculation that had ensued around its specific plans for cryptocurrencies was not true.
WEEK IN REVIEW
The Commerce Commission released its draft report into competition in the retail grocery sector concluding that competition is “not working well for consumers.” The report found that if competition was more effective, retailers would face stronger pressures to deliver the right prices, quality and range to satisfy a diverse range of consumer preferences. The commission also found persistently high profits being earned by the major retailers and high grocery prices when compared internationally. It said the level of innovation in the sector also appears “modest” by international standards.
In November 2020, the Government asked the Commission to look at whether competition in the $22 billion a year grocery industry was working well and, if not, what could be done to improve it. The Commission’s draft findings are preliminary and subject to consultation prior to its final report being published in late November.
Aroa, plans to raise capital to boost its presence in the US. The Australian Financial Review reported the locally based medical company was seeking A$52 million to fund the expansion of its US sales team, as well as research and development. In a June market update, the soft-tissue regeneration company said US medical procedure numbers continued to reflect a positive trend “supporting improved sales momentum”. Aroa has commercial operations based in San Diego and sales professionals across the US. In its 2021 results for the year ended March, the company said it was focused on building its commercial operations in the US over the next 24 months “to drive revenue growth.”
Trade Me has bought 15 percent stake in My Auto Shop, a start-up that matches car owners with an appropriate mechanic. The business was founded in January last year by Andy Bowie, a former general manager of Uber Eats NZ, with the goal of making car maintenance easier. The platform allows users to quickly find service providers with full price transparency from a single online platform without having to make multiple calls to obtain quotes.
Xero said it has signed a three-year global agreement with DFK International, an association of independent accounting firms with a network of more than 200 firms in more than 90 countries. The online accounting software company said its digital platform will become the accounting platform of choice for DFK members.
The Milford Opportunities Project, chaired by former Meridian Energy chief Keith Turner, plans to charge tourists to visit Milford Sound if a plan to revitalise the eighth wonder of the world proceeds. Revealing its master plan which aims to smooth the flow of visitors to the international attraction, the plan also proposes closing the existing Milford airport. Visitor numbers to the iconic region peaked at 870,000 in 2019 before the Covid-19 pandemic hit, doubling from 430,000 six years earlier, but the Milford plan’s authors believe those numbers can increase if people arrive steadily throughout the day, rather than peak times from Queenstown day trippers who account for about 45 percent of the visitors.
Z Energy believes its core fuel business will remain strong for more than a decade despite moves to decarbonise the economy. At its annual investor day last week the company said it was heavily focused on its future prospects in light of the need to end the use of vehicles with internal combustion engines to meet the government’s zero carbon by 2050 goal. Z believes the Climate Change Commission’s forecasts on electric vehicles uptake are optimistic and overstates fuel demand decline. It believes electric vehicles (EVs) for the light fleet will reach cost parity with internal combustion engines more quickly, but the forecast uptake of heavy vehicles (trucks) is not realistic.
Pacific Edge says it delivered record test numbers and cash receipts for the quarter to June, with lab throughput up 179 percent on the comparable period last year. The Dunedin-based cancer diagnostics company, which held its AGM last week, said cash receipts from customers continued to rise on the strength of higher reimbursement levels out of the US market in particular.
Independent Timber Merchants (ITM) has seen a sizeable lift in annual revenues which increased by $6 million to $63.2m for the year to March as a result of the current building boom. The lift in revenue saw a big jump in profit to $4.2m, up from $671,000 in the prior year. Trade and other receivables also jumped more than 30 percent to $95.7m, well up on last year’s $69m. The building cooperative, which has 96 stores and 27 frame and truss sites across the country, pushed its incentive rebates to $43.7m, up $5.7m from 2020’s $37.9m.
2degrees says former Port of Tauranga CEO Mark Cairns will chair its board if the telco’s initial public offering goes ahead as planned. The mobile provider expects to dual list on the ASX and NZX by the end of the year after achieving solid growth in the New Zealand market. Cairns is also currently a director of Meridian Energy, Sanford and Freightways.
Mainfreight chair Bruce Plested says the education system is to blame for a shortage of skilled workers in New Zealand. Addressing shareholders at the company’s annual meeting on Friday, Plested said that only 60 percent of students in the NZ were regularly attending school. He said that in 20 years NZ had dropped from being near the top of the world in reading and maths, to now being close to the bottom. As a result employers had been forced to recruit skilled workers from overseas, “because they have the skills and work attitudes and behaviour far superior to what we are producing in New Zealand”, he said.
Statistics NZ reported a record 44,299 new homes were consented in the year ended June. It was the fourth consecutive month of rises this year. The earlier high of 40,025 new homes consented in the year ended February 1974 was first exceeded in March this year.
New Zealand exports also reached a new high in June, off the back of record export values for logs and beef. In June 2021, the value of all goods exports rose $871 million (17 percent) from June 2020 to $6.0 billion. The previous high for exports was in May at $5.9 billion.
COMING UP THIS WEEK…
Wed: Labour Market Stats (June Qtr)
Fri: Refining NZ SSM; Kingfish AGM; AFT Pharmaceuticals AGM; Metro Performance Glass AGM