The Business
Bourses power on despite new faces in office
Will the ‘Trump bump’ last?
President-elect Donald Trump will officially take the reins of power in the US on Saturday.
But one question market watchers are asking is whether the market rally prompted by his win will be sustainable.
Since November 8 the S&P 500 has rallied close to 6 per cent while the Nasdaq is up more than 6 per cent and the Dow Jones Industrial Average has risen more than 8 per cent.
Even New Zealand’s sharemarket has benefited from the “Trump bump” with the S&P/NZX50 rising close to 6 per cent, although the local bourse has yet to regain all of the ground it has lost since its high on September 8.
It will take a while before Trump can put his proposed policies in place and before the effects of those will be felt.
Whether the US markets can keep going full steam ahead is yet to be seen.
On the home front, New Zealand is heading into an election but investors don’t seem to be worried as yet.
John Key’s decision to step down as Prime Minister on December 5 barely induced a blip in the markets and new boss Bill English has been viewed as a safe pair of hands.
If a Labour coalition was to win that would be a different story. But there’s a lot more electioneering to come before Kiwis head to the voting booths.
House of cards
Housing is likely to remain a hot topic in 2017 for politicians and market watchers.
One fund manager said most statistics were beginning to show the market had slowed down somewhat in the past few months and that could have ramifications for the listed retirement village and building sectors.
“Bid offer spreads are starting to open up,” he noted.
While the fund manager didn’t expect prices to fall much, he said there could be some big implications for the retirement village sector.
Retirement village operators are in the midst of a building spree as they anticipate strong growth in the number of retirees.
“They have got the pedal to the metal.”
But if house sales slow that could also slow or restrict retiree village sales and put a dampener on the prices they can demand.
Likewise that could flow on to building products firms, although pressure remains on Auckland to build new houses. Continuing immigration will be the key to keeping pressure on the housing market.
Perennial performer Ryman Healthcare got the go-ahead for its Devonport retirement village this week despite strong opposition from locals. But its shares have had a weak run in recent months.
Since the end of September they have fallen from $9.63, closing at $8.47 yesterday.
Rival retirement village operator Metlifecare has also seen a fall-off in its share price from $6.25 to $5.45 during the same period.
Oh, baby
Specialist milk producer A2 Milk will be closely watching its Australianlisted rival Bellamy’s Australia which is facing a boardroom coup driven by a foundation linked to Kathmandu founder Jan Cameron.
Bellamy’s ended a four-week trading suspension last week, its chief executive is departing and the company’s share price has dropped about 41 per cent after it warned it was suffering from rising inventories amid heavy competition from rivals selling infant formula into China.
The company says competitors have been selling products cheaply ahead of new licensing regulations in China due to come into force by 2018.
Those regulations are expected to cut the number of companies able to sell products there.
China’s move is designed to help cut risks to consumers after a number of safety scandals in recent years.
While the move is likely to cause short-term pain for New Zealand and Australian formula makers, those who manage to get a license will surely benefit.
One Australian analyst is picking both Bellamy’s and A2 Milk as potential takeover targets because of this.
“We continue to believe that BAL [Bellamy’s] (and A2M for that matter) remains a logical acquisition target for a global dairy/infant nutrition company, particularly in light of recent share price moves,” Shaun Weick, an investment analyst with CLSA, wrote in a recent note.
“The acquisition of BAL would make strategic sense for a player with a secure supply chain, CNCAapproved facilities/capacity and a strong distribution platform that is looking to increase its presence in the super-premium segment and leverage ANZ’s ‘clean and green’ reputation.”
Weick cited other takeovers in the sector and said media had reported that Nestle was said to be mulling a bid for Mead Johnson, a US-based infant formula company.
Credit Suisse had been appointed as adviser and a deal could be announced by March if talks go smoothly, he said in the note.
Last year Danone acquired organic food producer Whitewave in July for US$12.5 billion ($17.5b).
A2’s share price hit a high of $2.58 on December 1 but it has fallen back in recent weeks. Yesterday it closed unchanged at $2.27.