Business & Investing: The local sharemarket has its best month since November 2020, but is still in catch-up to the market gains made in the US and Australia
While lockdowns might not be good for the economy, local investors seem to find them irresistible as buying opportunities.
In August, the NZ sharemarket chalked up its best month of the year, despite the country being in Level 4 lockdown for almost half the period.
The NZX50 advanced 5 percent last month, more than double its best previous best month in March, when it gained 2.1 percent.
The gain also made it the index’s best month since November 2020, with mid-sized stocks in particular contributing strongly to the rebound.
The Reserve Bank’s postponement of its planned OCR hike, a solid earnings season and a growing sense that the current lockdown will not materially impact company earnings has meant the benchmark NZX50 index is now just 0.6 percent below its previous high of 13,558 set in early January at the height of the energy sector buying spree.
And the positive sentiment looks set to continue for a while longer with the market advancing a further 1.8 percent this past week.
However, the NZ market is playing catch-up, having lagged other global markets for most of the year. US stocks are up more than 22 percent year-to-date.
Across the Tasman, the Australian market is up more than 12 percent since January after gaining 2 percent in August and 0.5 percent last week. The move higher came despite shares in market leader BHP hitting a nine-month low of A$41.94 as iron ore prices continued to weaken.
US markets maintained their positive sentiment with the S&P500 closing at yet another record high of 4,535 after gaining a further 2.9 percent in August. Reinforcing the bullish tone, it was the market’s seventh successive month of gains, with January being the only month so far this year when the S&P500 has fallen.
However, a much weaker than expected US jobs report for the world’s largest economy suggests the labour market appears to be rapidly slowing due to the increasing spread of the Delta variant. Employers in the US added 235,000 jobs in August according to the latest monthly non-farm payroll report released on Friday, well short of the 728,000 new hires economists had been forecasting.
Oil prices eased slightly, with Brent Crude futures falling 0.2 percent for the week to US$72.42, while gold gained a further 0.6 percent for the week to close at a five-month high of US$1827 an ounce as potential inflation risks down the track continue to be a concern for some investors.
US Treasury yields ended the week higher with the closely watched 10 year yield gaining 1.2 percent to 1.326 percent, a two month high. After falling since early April, the 10 year yield had its biggest monthly rebound since March, gaining 7.1 percent in August.
The US dollar index weakened 0.6 percent this past week to 92.11 pushing the NZ dollar higher. The kiwi closed at 71.51 US cents, a 10 week high, having recovered all its earlier losses following the dollar’s sharp selloff after the RBNZ opted to postpone its planned interest rate hike in August.
Bitcoin gained 2 percent for the week to US$49,770.
WEEK IN REVIEW
Sanford shares were the big mover of the week after Ngāi Tahu Holdings increased its holding in the seafood company to 19.9 percent, paying a 24 percent premium to acquire the additional shares at $5.50. While pointing out that it was not seeking to take over the company, Ngāi Tahu Holdings chief executive Mike Pohio said he believed Sanford was an “attractive buying opportunity with a strong national presence and broad global reach.” Sanford shares fell to a low of $4.54 the day before the bid, just 20c above a 7-year low earlier in the year. Once the Ngāi Tahu Holdings bid had been filled, the shares retreated back to close at $5.12 on Friday. Existing significant shareholder, Amalgamated Dairies, offloaded almost half its 11 percent stake, selling 5.6 million shares to Ngāi Tahu for $30.8m.
Rua Bioscience recorded a full year loss before tax of $6.17 million, up from a loss of $3.59m last year, though the result was in line with forecasts. The medicinal cannabis company, which is still in a pre-revenue stage, said the result reflected increased research and development spending which jumped to $1.9m, from $1.29m in 2020. It said the funds had been used to develop its product lines as well as investment into cultivation and manufacturing. A government R&D grant of $357,366 and a Covid-19 wage subsidy of $91,636 comprised the company’s only revenue during the year, with its first exports to Germany expected to begin next year. After accounting for an income tax credit of $1.76m, the loss after tax was reduced to $4.4m, from $2.8m in 2020. Rua shares closed unchanged at 40c.
Pacific Edge is set to gain a secondary listing on the Australian stock exchange and expects its shares to begin trading on the ASX later this month. The cancer diagnostics business said being dual listed was “a logical progression for the company and a way of accessing a broader pool of institutional and retail investors”. It said the ASX has given ‘in-principle’ approval for the application, subject to it meeting final listing requirements. Pacific Edge chair Chris Gallaher said the dual listing would help the firm access specialist international healthcare investors and possibly gain inclusion in an ASX index in due course.
Statistics NZ reported new building consents continued to rise, hitting 45,119 for the 12 months to July, a 20 percent increase on the comparable period in 2020. 19,158 consents were issued in Auckland, up 29 percent on the same period in 2020. Canterbury consents rose by 19 percent to 6,811 compared with 2020. Auckland also accounted for 1,691 of the 4,211 consents (40 percent) issued during the month of July, valued at $1.8 billion.
The Reserve Bank is calling for submissions on whether current legislation gives insurance policyholders the protection they expect. As the regulator with oversight of the sector, the RBNZ said an important purpose of New Zealand’s insurance legislation is to promote a financially sound insurance sector. This consultation is part of the RBNZ’s wider review on the Insurance (Prudential Supervision) Act 2010 (IPSA) aimed at reducing the likelihood that an insurer might become unable to make claims payments it owes to policyholders. The consultation will also look at the type and breadth of information insurers publish, enabling customers and other interested parties to assess an insurer’s financial stability before purchasing a policy.
TSB Bank has been fined $3.5 million for breaching the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. Taranaki-based TSB accepted it didn’t have effective procedures, policies and controls for monitoring and managing compliance with the legislation and hadn’t reviewed and maintained its surveillance programme. Surprisingly, given the length of time the legislation has been in place, TSB also admitted it hadn’t conducted a risk assessment in respect of its real estate operations and hadn’t had regard to “certain countries” it deals with when reviewing its 2017 risk assessment. The Reserve Bank welcomed the decision after filing civil charges against TSB in May, with a statement of agreed facts between it and the bank.
Mainfreight shares gained almost 6 percent last Wednesday to an all-time high of $99.78 after releasing a positive trading update in the wake of trans-Tasman Covid restrictions. The global logistics company reported an 83 percent jump in profit before tax to $142.3 million from $77.7m for the comparable 22 weeks last year. The improvement was led by its American businesses reporting a fourfold increase in operational profits to US$27m from US$5.9m, while its much smaller Asian operations spiked by 173 percent to US$8.9m, from US$3.3m in the comparable April to July period last year. Total group revenue was up 43 percent to $2.2 billion, from $1.6b, led by a 72 percent improvement in air and ocean receipts. Mainfreight shares are up 37 percent year-to-date after six consecutive monthly increases in its share price since March.
Plexure shares were briefly placed in a trading halt last week after the company launched a $15.6m capital raise to partially fund a merger deal which will more than double the number of its shares on issue. The mobile marketing company’s key customer and shareholder, McDonald’s, confirmed it will buy 9.9 percent of the overall placement to maintain its current stake. Plexure Chair Phil Norman also confirmed he would participate in the capital raise. Shares in the company surged more than 25 percent to finish the week at 66c after touching a low of 52c recently, though year-to-date the shares are down almost 50 percent.
Ports of Auckland has, for a second year, cut its annual dividend to the Auckland Council by $1.2 million, to $3.7m for the year to June, blaming Covid-19 for the cut. Last year, it slashed its dividend to its owner by 75 percent to $4.9m, from a pre-covid dividend in December 2018 of $18.6m. CEO Tony Gibson stepped down at the end of June after coming under fire for the port’s poor health and safety record, as well as cost overruns on its stalled automation programme.
Fonterra held the mid-point of its forecast farmgate milk price for the current season steady in its latest announcement under the Dairy Industry Restructuring (Raw Milk) Regulations 2012. The dairy giant is forecasting a payout price of $8.00 per kilogram of milk solids, which is the mid-point of the $7.25-to-$8.75 per kgMS opening forecast previously announced. It said that it’s expecting its farmer-shareholders to supply 16.2 billion litres of milk in the season ending May 2022.
TVNZ has announced chief executive Kevin Kenrick will step down in February next year after nine years. The state-owned broadcaster said it would begin the search for a replacement shortly. A Government review into a potential merger of TVNZ with Radio New Zealand is currently being undertaken. Ministers are exploring a proposal to combine the two state-backed media groups into a single media agency.
COMING UP THIS WEEK….
- Value of building & construction (June Qtr) – Stats NZ
- TruScreen Group AGM
- Turners Automotive AGM
- Domestic trade data – RBNZ
- Business Employment & Financial data (June Qtr) – Stats NZ
- Electronic card transactions (Aug) – Stats NZ
- International travel (July) – Stats NZ