Sharemarket flips positive, tracking Asian markets higher

Tuesday, 18 May 2021

The sharemarket flipped positive at the close, following Asian shares higher, after spending most of the day in the red.

The benchmark S&P/NZX 50 Index gained 18.146 points, or 0.15 per cent, to 12,428.62 on light volume on Tuesday.

“Asian markets in general are looking pretty positive and we have got some positive leads with early signs futures in the US are looking positive as well,” said Craigs Investment Partners adviser Peter McIntyre.

Japan's benchmark Nikkei 225 surged 2.1 per cent in morning trading to 28,412.06. South Korea's Kospi gained 1.1 per cent to 3,169.67. Australia's S&P/ASX 200 added 0.8 per cent to 7,078.40. Hong Kong's Hang Seng jumped 1.3 per cent to 28,551.53, while the Shanghai Composite inched up nearly 0.1 per cent to 3,519.58.

**READ MORE:

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* Sharemarket gains, led by Fisher & Paykel Healthcare as Covid cases rise

**

The local market spent most of the day in the red, pulled down by The a2 Milk Company which has been struggling to find favour with investors after four consecutive profit downgrades.

A2 Milk touched $5.52, its lowest level since August 2017, and closed down 3.5 per cent at $5.56. The stock has lost 72 per cent of its value over the last year.

Last Tuesday, the specialty milk marketer said it planned to remove old stock from the market and slow down sales as it struggled with an oversupply of product in its key Chinese market after trading was informal cross-border selling was disrupted following Covid-19.

“The market is concerned with regard to inventory levels, how much margin erosion is going to happen, and just when that Chinese market starts to re-open again,” said McIntyre. “The next couple of years are going to be tough for them.”

McIntyre said investors were recalibrating the value of the shares with a weaker growth outlook, and the departure of key executives had added to the uncertainty.

”At the moment we are seeing a number of investors just sort of clear the decks and look to exit with this uncertainty and move elsewhere in the market,” he said.

“The plan that they have put forward has a lot of merit to it, and I just think it’s that execution and maybe some doubt about what has happened in the past with regards to these four downgrades which have happened in quick succession. Once investors lose confidence around management, it’s a hard thing to regain. They are working hard to resolve that, but the damage has been done.”

Still, he said a2 had a strong balance sheet with plenty of cash.

Dairy company Synlait Milk, whose biggest customer is a2, dropped 2.3 per cent to $2.93, its lowest level since March 2016. The stock has lost 58 per cent of its value over the past year.

Some companies which have had strong gains recently declined.

Diversified investment company Ebos Group, which touched a record $31.28 last month, dropped 0.2 per cent to $30.90, while transport company Mainfreight, which hit a record $77 this month, slipped 0.4 per cent to $73.40.

The biggest stock on the market, Fisher & Paykel Healthcare, fell 1.7 per cent to $32.90.

McIntyre noted that trading volumes were light.

Elsewhere, The Warehouse Group rose 1.4 per cent to $3.65, taking its gain over the past year to 86 per cent.

Brokerage Forsyth Barr upgraded its recommendation on the stock to ‘outperform’ from ‘neutral’ after the company on Friday said it expected to double its full-year profit as it benefits from strong trading and restructuring.

Forsyth Barr analysts Guy Hooper and Ashton Olds said the company’s profit forecast of $160 million was below their estimate of $175m, and they thought it was conservative.

“Given recent commentary suggesting there is still a long road ahead before New Zealand borders reopen, limited impact on retail spending from the Trans-Tasman bubble to date and improving consumer confidence, we expect the buoyant operating backdrop to remain in place for longer and we lift our 2022 forecasts as a result,” they said.

Travel software company Serko, which reports full-year profit on Wednesday, jumped 4.9 per cent to $6.70 on light volume of just 81 trades.

– With AP