The S&P/ASX 200 (INDEXASX: XJO) and the broader Australian share market is expected to open sharply higher on Tuesday following strong leads from Wall St.
COVID tests turn positive?
Overnight, US drugmaker Moderna announced positive results from its human trials of a COVID-19 vaccine, treating those yet to suffer from the disease with some positive results.
The share price rallied over 20% and sent US markets higher to return their strongest day in weeks, the Dow Jones adding 3.9%. It’s clearly too early to predict the eventual success of the treatment or any other vaccine, yet investors around the world seem desperate for any signs of positive news.
Bazookas and PE takeovers
Jerome Powell, Chair of the US Federal Reserve, calmed markets once again stating overnight ‘the US is not out of ammunition by a long short’. His ‘whatever it takes’ moment.
After expanding the Fed’s purchases into junk bonds, the central bank may seek to follow the Japanese route of buying up sharemarket ETFs. Japan’s central bank now owns close to 90% of its local ETF market. Incredible.
With the COVID-19 shutdown causing a cleanout of many less efficient and capital-starved businesses, the merger and acquisition activity is beginning to grow. BGH Capital had a busy week after being shortlisted for the Virgin Australia recapitalisation but it also entered an exclusivity arrangement with Village Roadshow Ltd (ASX: VRL), the owner of Movie World and cinemas around Australia…
The things you can do when you have the might of Australian Super’s two million members behind you…
If you ask me, the offer for Village Roadshow shares appears to be an interesting arbitrage, with the offer price of between $2.20 and $2.40, but the share price still around $2.10.
Good, bad and exports
The Australian market pre-empted the US recovery as the Chinese government softened its hard-line stance on trade and Brazil’s government announced shutdowns of their key iron ore mining regions, sending BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) shares up strongly.
In our view, both companies are well-placed to weather this and future storms whilst forming a key part of an anticipated infrastructure boom.
Softbank Inc, the manager of the so-called $100 billion Vision Fund, revealed it lost $17.7 billion for the year, as holdings in WeWork and Uber were written down by $4.6 billion and $5.2 billion, respectively. While the headline result sounds bad, we think investors should expect this type of volatility when holding start-up companies and believe there is substantial latent value in the internet conglomerate.
Closer to home, Elders Ltd (ASX: ELD) announced a 53% jump in profit as its new wholesaling acquisition added immediately to profits. Meanwhile, Superloop Ltd (ASX: SLC), the fibre connection provider, saw its shares shoot up a further 18% as it reiterated its forecast of $12 million to 15 million in earnings amid increased demand for more consistent fibre connections.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
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