Yovich & Co. Market Update - 21 December 2016

Dec 21, 2016 | Commentary

Changes In Market

 

 

 

Another busy year is quickly coming to an end and we wish you a Merry Christmas from all of us at Yovich & Co. We hope that you have some quality family time and enjoy yourselves during the festive season.

It is also a time for reflection and below is my take on the last 12 months of activity in the local and global markets.

Year in Review - Market Themes

  • Despite some huge political surprises, international markets have been buoyed by improving commodity pricing, robust economic growth in the U.S. and supporting Central Bank policies.

  • It was another strong year for the New Zealand market and it has extended the winning streak to 5 years and a total return of 107% over that period. The tourism sector was a significant driver for growth and this was reflected in a 67% increase in the share price for Tourism Holdings. Fletcher Building has seen a turnaround in its value and is back to being the second largest company on the local bourse with a 47% increase in share price with the company beginning to benefit from a strong construction sector.

  • An end in the bear market for resource stocks saw the Aussie market have a strong second half for the year and had a gain of 5.07% for the year so far. The stand out performers have been Fortescue Metals (up 235%) South 32 (up 148%) and BlueScope Steel (up 126%).

  • BREXIT was one of the first signs that there was a shift towards populist politics in a major Western country and the vote for Britain to leave the Euro Zone surprised markets. Volatility in European equities and currencies were swift and the Pound has lost 14% of its value against the Greenback while the FTSE index was able to partially offset that loss.

  • US markets had a very strong year with the Fed Reserve having the confidence to continue with raising interest rates. Another surprise for markets was the election of Donald Trump as the President Elect. The initial reaction was very negative with S&P 500 Futures trading halted, after being “limit down” (a 5% fall). The subsequent rally based on Trumps fiscal spending polices and investment in infrastructure projects has seen an 11.7% turnaround since those lows.

  • The Kiwi Dollar had a strong year which is surprising given the OCR falling 75 basis points and interest rates starting to rise in the U.S. This is testament to the relative strength of the economy and the positive business environment in New Zealand.

Investment News

First NZ Capital NZ Herald Stock Picks for 2017

Every year First NZ Capital analysts meet and contribute to a NZ Herald newspaper NZ stock forecast for the year ahead. This is likely to be reported over the Christmas break on either the 26th, 27th or 28th of December.

The FNZC 2016 basket (CEN, MPG, FPH, IFT, SPK) returned approximately +7.5% for 2016 with the FNZC research team ranking mid-pack.

For history 2016 the names that came close but didn’t make the cut for our final 2016 picks were AIR, ERD, MFT, SUM and MET. For 2017, stocks chosen are focused on stock specifics and returns are perhaps forecast to less likely correlate to market returns.

  1. Fisher and Paykel Healthcare (FPH $8.29). “FPH is a straightforward, high quality business moving from strength to strength”. Valuation at these levels is attractive. (12 Month Target Price: $9.70)

  2. Xero (XRO $17.55). After volatility we think there is less downside risk for XRO and XRO can rerate higher from current levels. We expect on balance news flow for XRO to be more favourable from here.  (12 Month Target Price: $21.00)

  3. Synlait (SML $3.00). We think SML is an attractively priced stock to gain exposure to the Chinese infant formula market with growth opportunities ahead. SML can achieve its growth within its current balance sheet capabilities. (12 Month Target Price: $3.80)

  4. Tegel (TGH $1.40). 3 reasons support TGH’s inclusion; supply side rationalisation, cost-savings and lower input costs. (12 Month Target Price: $2.00)

  5. Contact Energy (CEN $4.74). CEN still screens attractively, we think around 20% undervalued. Revenues are stable. The catalyst for CEN stock price appreciation will likely be when CEN has finished paying down debt. (12 Month Target Price: $6.26)

  6. As per normal practice names for 2017 that came close but didn’t make the cut included The a2 Milk Company Limited (12 Month Target Price: $2.57), New Zealand King Salmon (12 Month Target Price: $1.49), Turners Limited (12 Month Target Price: $3.90) and Fonterra Shareholders' Fund (12 Month Target Price: $6.22).


Disclaimer: This publication has been prepared for your general information. While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken for any errors or omissions. This publication does not constitute financial or insurance product advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. No part of this publication may be reproduced without prior written permission from our company. Disclosure statements relating to the financial advisers associated with this newsletter are available on request and free of charge either electronically or from our offices in Whangarei and Dargaville.

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Jarrod Goodall



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