Business & Investing: The world’s eyes are on the NZX, first to reopen as Omicron spreads around the globe
Black Friday lived up to its name this past week as share prices tumbled in response to news that a new Covid-19 variant has experts worried.
Investors have spent the past year largely unconcerned about the gyrations of the evolving pandemic, comforted by abundant stimulus from central banks and expectations that vaccines would keep the virus in check.
That sense of calm was decisively shattered on Friday after the emergence of a new, potentially more virulent strain of Covid (since named Omicron) sent shivers through global financial markets. It was a timely reminder to investors that Covid is still capable of upending expectations almost two years from its inception and its future course remains as unpredictable as ever.
Bond markets, which have recently fixated on the potential for early interest rate rises as central banks battle stubbornly high inflation, also made a sharp change in course. Government bonds rallied strongly as investors sought a safe haven and dialled back some of their expectations for monetary tightening next year.
The NZX50 recorded its fifth worst day of the year on Friday falling 166 points, or 1.3 percent to end the week down 0.9 percent. It was the fourth consecutive losing week for the local market, its worst run since February. With just two trading days left in November, the NZX50 looks set to end the month down more than 3 percent, its third consecutive losing month this year, and is now down 5.5 percent year-to-date.
After rallying in recent weeks in anticipation of last week’s border reopening announcements, Auckland International Airport shares fell more than 2 percent to close at a one month low of $7.76, while out of favour Ryman Healthcare shares continued their recent slide falling a further 6.9 percent last week to finish at $12.20, an 18 month low. Investors remain concerned about the company’s slowing growth and rising interest rates impacting its debt servicing costs.
Serko shares fell more than 14 percent to a six-month low of $6.75 after the travel expense software company announced an $85 million capital raising as it awaits an eventual return to business travel in international markets.
Across the Tasman, Australia’s ASX200 index fell 1.6 percent for the week to 7,279.
Investors will be bracing for more selling today after European and US markets fell sharply on Friday (US time). On Wall Street the S&P500 index slumped 2.3 percent, closing near its low in a Thanksgiving shortened trading session, its biggest one-day decline since February, while Europe’s combined STOXX600 index fell 3.7 percent.
“With the delta wave in mind from earlier this year, investors are likely to shoot first and ask questions later until more is known about this new variant” said Singapore-based Jeffrey Halley, Senior Market Analyst at OANDA.
Oil prices also fell sharply in response to news of the new variant. Brent Crude Oil futures ended the week down 7.1 percent at US$72.86 a barrel after trading as high as US$85 a barrel earlier in the month. The price of gold also eased 3 percent for the week as investors sought the safety of the US dollar.
Not surprisingly, the closely watched volatility index (VIX), often referred to as the market’s ‘fear gauge’, spiked almost 60 percent to 28.62, its highest level since February.
The NZ dollar fell 2.6 percent for the week to a 12 month low at 68.2 US cents. For the month, the kiwi has fallen almost 5 percent, its sharpest monthly decline since October 2017.
Bitcoin also wasn’t immune from the selloff, with the popular cryptocurrency falling 7.3 percent for the week to US$54,400.
WEEK IN REVIEW
Fisher & Paykel Healthcare surprised investors, reporting half-year revenue that fell just 1 percent to $900 million. Analysts had been expecting a decline of between 7 percent and 9 percent as Covid-related sales waned. The company had previously announced it would not be providing earnings guidance due to the unpredictability of sales during the pandemic. Instead, the healthcare exporter’s revenue increased 2 percent when adjusted for changes in currency prices. F&P Healthcare shares surged nearly 8 percent following Thursday’s announcement but eased back on Friday following news of the new Covid variant. The shares ended the week up 4.6 percent at $32.60.
Metro Performance Glass continued its track record of underperformance, barely breaking even in the first half of the year due to Covid-related lockdowns and global supply chain disruption lifting costs. The company reported a net profit of $0.4 million, down from $7.6m in the same period last year, including a $2.2m government wage subsidy in the most recent period and $6.1m last year.
Meridian Energy announced the sale of its Australian electricity sector assets, ending nearly two decades of investment in renewable wind and hydro generation, with the establishment of its retail brand Powershop in Australia. The company said the decision to exit its Australian investment portfolio was largely due to what it described as the “highly politicised” energy sector environment across the Tasman. Meridian shares fell 2 percent for the week to $4.53.
Kiwi Property Group reported a near tripling of its first-half net profit as the value of its properties rose and its operating profit climbed 8 percent. Net profit of $143.2 million for the six months ended September compared with $54.2m in the same period last year, while pre-tax operating profit rose to $62.5m from $55.2m, largely reflecting an 11.5 percent lift in rental income. The value of Kiwi’s properties rose 2.8 percent to $93.6m. The company will pay a 2.75c first-half dividend, up from 2.2c last year.
NZ Refining confirmed its 60-year-old oil refinery at Marsden Point, near Whangārei, will cease production from April next year following a significant decline in refining margins in recent years. The company said it would now focus on converting the site to an import terminal and storage facility. Reflecting this operational change, NZ Refining said it would be changing its name to Channel Infrastructure. The decision has been in the pipeline for some time and follows recent agreements with its three largest local shareholders: Mobil, Z Energy and BP.
Re-Leased, a commercial property management platform, revealed new data showing that almost half of Auckland’s retail and hospitality businesses didn’t pay their rent on time last month, or in October. The data, from across 26,000 national commercial tenancies, shows only 55 percent of Auckland retail and hospitality tenants were able to make their lease payments last month and also in September, compared with 77 percent pre-lockdown. Outside Auckland, monthly on-time lease payments were tracking between 75 percent and 80 percent.
HRL Morrison & Co said it has secured more than US$3 billion in funding commitments to establish a new, open-ended global infrastructure fund. It said the new fund would provide investors with access to major global themes driving multi-decade growth opportunities, including the energy transition and decarbonisation, climate change and digitisation of the global economy. Morrison & Co manages NZX-listed Infratil and has around A$19.3b in funds under management.
Argosy Property reported an 11 percent increase in net profit to a record $127 million in the six months through September due to valuation gains across its mixed commercial portfolio. Net property income climbed 5.1 percent to $53.1m. The company said it had provided $800,000 in rental abatements to tenants during the period as a result of Covid-related trade interruption.
TradeWindow, a software company that digitises and streamlines trade documentation, made a spectacular debut on the NZX after its shares almost doubled in its first day as a listed company. The company is one of the first technology listings on the NZX since 2014. TradeWindow shares finished the week up 90 percent at $1.81, adding more than $70 million to its market capitalisation.
Arvida reported a net profit for the six months ended Sept 30 of $75.5m from $41.8m in the same period last year. Property revaluations boosted the retirement village operator’s latest result by $69.6m, compared with the $36.3m contribution last year. The company said it was a strong result despite the disruption caused by lockdown restrictions.
A2 Milk confirmed it was facing a second class action from Shine Lawyers on behalf of shareholders who say they were misled by the company’s inflated forecast of baby formula sales. Shine practice leader Craig Allsopp, who is managing the claim, said that investors who purchased shares between August 19, 2020 and May 7, 2021 have a right to recover their losses. At the end of the 2021 financial year, the company reported earnings 20 percent lower than forecast, resulting in a 62 percent plunge in the share price. A2 Milk maintains it provided the market with all the necessary information it knew of at the time.
Serko announced plans for an $85 million capital raising to help prepare the company for an eventual return to business travel in international markets. The travel booking software company said total operating revenue climbed 81 percent to $9.2m in the half year ended September. However, its losses widened as it continued to invest in its software platform as well as expanding into international markets. Serko reported a net loss of $15.2m, up 50 percent, and an earnings loss of $11.8m, widening from $6.7m in the previous period. It’s shares fell 14 percent for the week to $6.75.
Pacific Edge posted a loss of $9 million for the half year ended September 30, after expenses increased to $15.7m, up $4.5m on the comparable 2020 period. The cancer diagnostics company had previously posted a loss for the September 2020 period of $7.1m, which widened to $14.2m by March. CEO David Darling said the higher operating costs reflected accelerated spending into growth areas, particularly into sales and marketing efforts in its key US market. Pacific Edge shares fell almost 10 percent for the week to $1.24.
COMING UP THIS WEEK…
Monday
- NZ Automotive Investments – Half Year Result
- Oceania Healthcare – Half Year Result
- Radius Residential Care – Half Year Result
- Harmoney Corp AGM
- GEO Limited AGM
- Employment Indicators (Oct)
Wednesday
- Synlait Milk AGM
- Building Consents (Oct)
Thursday
- DGL Group AGM
- Overseas Trade & Balance of Payments (Sept)
Friday
- Key Household Financial Stats (Sept)
