The S&P/ASX 200 (INDEXASX: XJO) is expected to open slightly higher on Tuesday. Here’s what ASX investors need to know.
Despite widespread geopolitical and societal tension, be it from US protests or the threat of a renewed trade war with China, the market seems to keep powering through exhibiting the disconnect between Wall Street and Main Street.
The S&P 500 was up 0.4% driven by airlines, Boeing, +4% and the banking sector, with JP Morgan Cash & Co (NYSE: JPM) and Goldman Sachs Group Inc (NYSE: GS) both +1.5%. It was a similar story in Europe with the Stoxx 50 up 0.9% and the ASX which overcame early weakness to spike 1.1%.
The ASX was driven by the more cyclical sectors with cement suppliers Boral Ltd (ASX: BLD) and AdBri (ASX: ABC) both jumping over 7% as the former announced the refinancing of $1.2 billion in debt, staving off any threat of joining the capital raising lines.
Revaluations ahead
Vicinity Centres (ASX: VCX) shocked the market after entering a trading halt and announcing a $1.4 billion capital raising in order to avoid covenant breaches while also cancelling its dividend. Management announced that just 49% of normal rent had been received, sending the entire sector down.
The raising was accompanied by an 11-13% reduction in the net tangible asset value of the company, which owns the popular Chadstone shopping centre and is the first sign that pain from more restrictive Victorian lockdowns may have a bigger impact than expected.
I expect further write-downs as 30 June valuations are completed, perhaps in the ‘vicinity’ of 30%, particularly as the likes of Premier Investments Ltd (ASX: PMV) seek to renegotiate leases across its store network.
Record highs on the horizon
Australia’s economy continues to benefit from the COVID-19 issues facing Brazil which is expected to overtake the US for cases and deaths in the coming months. The mass shutdown of mines saw the iron ore price spike to over $100 per tonne, sending Fortescue Metals Ltd (ASX: FMG) to an all-time high above $15 and BHP Group (ASX: BHP) up another 3%.
This has also been supported by an improvement in Chinese PMI figures, with Manufacturing printing at 50.6 — the third straight month of expansion. The rally has also seen the AUD move over $0.67 after bottoming near $0.55, suggesting our call to hedge positions in March was a prescient one.
Finally, Iress Ltd (ASX: IRE) announced the acquisition of One Vue Holdings Ltd (ASX: OVH) sending the stock up 56%. The software provider for fund managers offers the monopolistic Iress a scaleable growth opportunity in the Australian market.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
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