Yovich & Co. Weekly Update - 13 May 2013
May 13, 2013 | Commentary
This Week's Themes
• The NZX50 was strong last week, outpacing all the other markets we monitor. The market was led by the retailers with notable upswings from Kathmandu and The Warehouse.
• Mighty River Power listed on Friday with the stock closing 5% higher than its listing price at $2.62. The Government will officially announce which State Asset will be floated next at the Budget announcement on Thursday. Odds are that it will be Meridian.
• The Australian Reserve Bank (RBA) made a 'surprise' cut in interest rates to a record 50 year low of 2.75%. The rate cut, as well as strong trade data with China spurred the market to another post GFC high.
• Upbeat earnings reports in the U.S. helped the markets to further record levels on the Dow Jones. There have also been talks that the Federal Reserve might increase the level of 'Bond Buying' and Quantitative Easing.
• European Stocks are also extending post GFC highs with Financial Stocks beating earnings estimates and leading the market higher.
• The rally in the Kiwi and Aussie dollars has been halted by the surprise drop in rates by the RBA and the RBNZ shorting the currency in a move to talk down the currency.
Long US Dollar Exposure – Is the Record Level in the Kiwi Over?
I have received several reports this week with analysis showing why the Kiwi dollar and the Aussie dollar are set for a correction against the USD. The Aussie dipped below parity for the first time in 12 months after the RBA cut rates to a 50 year low and the great George Soros announced that he had shorted the Aussie. While closer to home, the RBNZ Governor, Graham Wheeler made comments indicating that the RBNZ has been intervening in the Kiwi dollar by selling reserves. There are also technical charts showing the precarious level that the AUD is sitting at, while from a fundamental point of view, the USD is looking undervalued given the improving economy and strong company reports. Below is a list of stocks that have significant US earnings that will benefit from a falling Kiwi dollar:
• The New Zealand Refining Company Limited (NZR.nz) – All earnings from refining operations are denominated in USD and account for over 85% of all earnings. For every 1 cent drop in the NZD USD exchange rate, earnings increases by approximately 5 million NZD or 2 cents per share
• Sanford (SAN.nz) – Fish pricing globally are all set in USD so close to all earnings for Sanford are in USD. For every 1 cent drop in the NZD USD exchange rate, earnings increases by approximately 2 million NZD or 2 cents per share.
• Fisher & Paykel Healthcare Corporation Limited (FPH.nz) – FPH has significant business in the US with 61% of their earnings exposed to the USD.
• Diligent Board Member Services (DIL.nz) – The vast majority of Diligents business is done in the US with non U.S earnings accounting for less than 4% of total earnings.
Shares Commentary Investments Weekly Update Market The New Zealand Refining Company Limited NZR Sanford SAN.nz Fisher & Paykel Healthcare Corporation Limited FPH.nz Diligent Board Member Services DIL.nz