The S&P/ASX 200 (INDEXASX: XJO) is expected to drop at the open according to data from the Sydney Futures Exchange. Here’s what you need to know.
Tech takes a breather
The ASX 200 gained another 1%, taking a positive lead from US markets, with over 60% of the rally coming from the big four banks, which saw Commonwealth Bank of Australia (ASX: CBA) up 2.2%, and miners. BHP Group Ltd (ASX: BHP) rose 2.2% after the iron ore price exceeded US$118 per tonne. The IT sector experienced rare weakness, falling 1%, as Technology One Ltd (ASX: TNE) suffered a second short attack and dropped 7.7%.
Stronger than expected Chinese vehicle sales, increasing 11.6% along with another $50 billion in monetary stimulus, pushed both the Shanghai Composite and Nikkei 225 nearly 2% higher, the likes of Mazda Motors (TYO: 7261) and Honda Motor Co (TYO: 7267), adding 8.8% and 5.8% respectively.
US markets couldn’t continue the rally on Monday, the Nasdaq falling 2.1% and the S&P 500 down 0.9% into the close, as signs that COVID-19 outbreaks may result in shutdowns across California and Florida, hitting the hopes for a quick recovery.
Wesfarmers considers another spin-off
One thing that stands out from the swift recovery is Australia’s lack of self-reliance and the resultant dearth of leading global companies. It has been those companies, like Microsoft Corporation (NASDAQ: MSFT) and Amazon Inc. (NASDAQ: AMZN) leading sharemarkets, employment markets and the economy into the future. In my view, any Australian investor with less than 50% of their equity exposure offshore should be closely considering their approach.
Rumours abound that Wesfarmers Ltd (ASX: WES) is considering selling off its 25% stake in the Bunnings Warehouse Property Trust (ASX: BWP), placing the company in a strong position for a major acquisition. WES has consistently stood out as an Australian company of global quality.
Recent sharemarket rallies are placing incredible pressure on this month’s reporting season, with strong results required to justify lofty valuations. PepsiCo Inc. (NASDAQ: PEP) was the first in line, reporting stronger than expected snack sales and revenue above expectations; the stock was up 0.33% as a result.
Confession season begins
PNG focused oil and gas junior, Oil Search Limited (ASX: OSH), was the first in line for confession season, announcing a $400 million write-down to the value of their exploration assets following the incredible falls in the price of oil.
Beleaguered debt collection agency Credit Corp Group Limited (ASX: CCP) followed closely behind, cutting the value of recent debt purchased by $50 million and reducing profit to just $10 million for the financial year.
The aged care story continues to worsen, with Estia Healthcare (ASX: EHE) announcing both 13 confirmed COVID-19 cases in Victoria along with a reduction in the value of goodwill by as much as $148 million. EHE’s strategy of acquiring multiple operating businesses has been tried before, ABC Learning for example, with a reduction in goodwill, in my view, a sign of worse times to come.
The outlook doesn’t get much better for Australia’s shopping malls, with the e-commerce trend seeing vacancy rates at their highest level in 20 years, at 5.1%, but as high as 11.1% in our cities.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.
