Top 10 Market Trends Driving Investors’ Interest

Monday, 4 May 2020, 6:56 pm
Press Release: Kalkine

Setting a global example in the fight against Covid-19, New Zealand has advanced towards eased lockdown restrictions with business activities rapidly gaining momentum across the country. Construction workers are back to work, and deliveries of the non-essential goods are in full swing. Although face-to-face services still remain shut to prevent the second wave of infection, the economic outlook for the country has shown signs of early revival.

In the meantime, the forward nudge to the economy has been enhancing investor’s optimism where a trail of events in April has already staged a significant boom in the New Zealand stock market.

Let's have a look at some of the trends that have influenced investors’ sentiments while they attempt to stay afloat during economic turmoil and market uncertainty:

1. Hopes of Economic Revival: NZ equity market witnessed substantial gains in April backed by expectations of lockdown easing amidst continued success in controlling the health crisis. NZ PM Jacinda Ardern has indicated that the Level-3 alert is directed towards ‘opening economic activity’, the effects of which are expected to be reflected directly on the secondary markets of the country.
2. Support to Economy Through Central Bank Stimulus: Since the early infection signs floored New Zealand, the Central Bank geared up its support for the battered economy in the fight against Covid-19. The efforts of the Reserve Bank of New Zealand (RBNZ) are broadly directed towards providing liquidity to the economy. Backing the Finance Guarantee Scheme of the government, RBNZ has introduced a Term Lending Facility that would facilitate lending to businesses. Besides, the Central Bank is maintaining the cash rate low at 1% with the launch of $30 billion Large Scale Asset Purchase programme for injecting cash into the economy.
3. Stocks on Recovery Mode: The markets that plunged initially amidst the early infection signs have started clawing back gradually with the flattening of Covid-19 curve in New Zealand. Several stocks rebounded in April, including Restaurant Brands New Zealand Limited (NZX: RBD), SkyCity Entertainment Group Limited (NZX: SKC) and Tourism Holdings Limited (NZX: THL). Besides, some analysts expect further market rally with the optimistic sentiments picking up the pace among the investors.
4. Relaying Profits on Stock Recoveries: On the last trading day of April, the investors were cautious towards letting their April gains slip away. The S&P/NZX 50 index fell by 1.26% on 30 April, and the blue-chip stocks like Meridian Energy (NZX:MEL) and Fisher & Paykel Healthcare Corp Ltd (NZX:FPH) recorded a substantial drop. The investors seemed to have sold the outperforming stocks, locking-in the profits made during the month.
5. Value Investment in beaten-down Travel Stocks: The travel companies that have been worst hit by Covid-19 seem to have been trading at lower levels. The international border restrictions in NZ are to remain in place for the next few months, while the country could cut restrictions for Australia in the near future. In such a scenario, the travel stocks such as Auckland International Airport Limited (NZX: AIA) and Air New Zealand Limited (NZX: AIR) offering substantial price bargains were perhaps viewed as attractive opportunities by the investors post steep correction.
6. The New ‘Defensive’ Zone for Now - Online and Tech businesses: In the period of high volatility, the resilient defensive stocks seem to be on investors’ watchlist given their potential to maintain stable and consistent earnings in the long-term. At the same time, the breakthrough performance of the online platforms and technological innovations in outstripping the obstacles during the Covid-19 fallout has enhanced the popularity of stocks in the related space, including Pushpay Holdings Ltd (NZX: PPH), and Solution Dynamics Limited (NZX: SDL), among others.
7. Investment in Commodities Driven Stocks: Gold and Oil are the commodities that are closely monitored by the market participants. Gold is often resorted as safe haven in the fears of recession, though with brief episodes of correction. Meanwhile, the low global demand for fuel, lingering storage issues and the outlook concerns recently dragged the oil prices to historical crash to below zero; however, now showing bleak signs of recovery. Over the period of time, investors seem to have gained increased interest in the publicly-listed mining and energy companies due to their direct exposure to these commodities.
8. Retail Sector Gaining Momentum: The demand skyrocketed for essential goods in the retail sector during the level-4 restrictions in New Zealand. A2Milk (NZX: ATM) sales spiked during the lockdown with quarterly revenues above expectations, sending the stock high on exchange. Now, the alert Level 3 allows online sales and contactless delivery for the retailers, which is expected to increase momentum in the sector with the hopes of higher benefits on the reopening of economy.
9. Mutual Funds Market: The ongoing market volatility has piqued the risk containment plans through portfolio diversification. The mutual funds market in New Zealand is expecting a radical transformation with investors’ higher emphasis on the diversification needs.
10. Mortgage Centric Schemes: The taxational policy change allows industrial and commercial properties to claim 2 per cent annual depreciation from April. The government is also considering the reduction of Loan-to-Value Restrictions. S&P/NZX All Real Estate recorded the MTD return of 3.65% on 30 April 2020. With this backdrop, investors seem to be actively seeking to inject their capital in the Investore Property’s $100 million capital raising program that has been creating the buzz on stock exchange for its discounted price and the synergies commercial landlord plans to steer through its potential acquisitions.

While market players are looking for diversification options in an attempt to beat the market volatility, it is imperative to undertake a prudent decision making in cherry picking attractive stocks in potentially attractive themes.

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