Yovich & Co. Market Update - 27 June 2016

Jun 27, 2016 | Commentary

Market Theme




Market Themes

  • There is only one theme at the moment and that is BREXIT. Below is a run down of the most recent considerations from First NZ Capital. We have also included in this weeks Market Update some more in-depth research which follows on page 2:

  • Credit Suisse’s assessment of the key economic and political consequences of the vote to leave the EU include:

    • A shallow UK recession,
    • A Euro area slowdown, although not a recession,
    • Easing measures from the BoE and ECB,
    • A period of considerable political turbulence in the UK, and
    • Greater sensitivity to political stress in the EU.
  • While Credit Suisse suggests that markets tend to over-react to political shocks and they acknowledged the risk of a technical bounce-back, they initially think that many markets have further to run.

  • Nevertheless, at this point Credit Suisse assess that the “Leave” vote does not represent a systematic shock to the financial system on par with the Lehman or Greek departure from the Euro, with financial institutions better prepared for this event and are better capitalised. However, they do suggest that it likely represents a significant turning point. In particular, with the UK taking a major step back from globalisation and that over the medium term this is likely to have substantial implications for growth, corporate profits and asset prices.

  • Credit Suisse suggests that in the case of a full Brexit scenario, their FTSE 100 year-end target is lowered to 6,200 from 6,600 (down 6.1%), while they have also reduced their S&P500 year-end target to 2,000 from 2,150 (a fall of 7.0%). Closer to home, Credit Suisse have also lowered their year-end target for the ASX 200 to 5,500 from 6,000 (a fall of 8.3%).

  • The key transmission pathways and major economic and financial market implications of a Brexit for the NZ economy are assessed to include:

    • A weaker profile for NZ goods and services exports to the UK,
    • A deterioration in domestic business and consumer confidence,
    • A softer global economic backdrop dampening NZ’s broader external trade prospects,
    • NZ dollar weakness on risk-off price action, but still supported by positive growth and interest rate differentials,
    • NZ’s long term interest rates set to be lower-for-longer,
    • RBNZ increasingly likely to lower the OCR by an additional 25-50bps, and
    • NZ equity market set to weaken, but relative attractiveness could improve.

Investment News

Vital Healthcare Property (VHP.nz) – Rights Issue

Vital has announced that existing shareholders can subscribe for 2 New Units for every 9 Existing Units held at a price or $2.08. Vital has made recent announcements identifying future developments and acquisitions which will utilise bank facilities as a source of financing. The funds raised through the Offer will initially be used to reduce Vital’s bank debt. This will enable Vital to continue to pursue development, acquisition and growth opportunities that are continually being evaluated, and for general corporate purposes. The divided for the year has been forecast to be 8.5 cents per share, an increase from 8 cents in the previous year.

To take up the rights, the posted form needs to be completed and received by the registry before 5:00pm on 19 July 2016.

Stride Property (STR.nz) – Investore Property Limited IPO and Shareholder Entitlement Offer

Stride Property Limited (Stride) has announced the successful completion of the bookbuild in connection with the initial public offering of Investore Property Limited (Investore) which has secured commitments from investors and brokers to subscribe for $185 million. Investore will have a strategic focus on the “Large Format Retail” property sector.  The price for the Offer has been set at $1.49 per share (the Final Price), being the top end of the indicative price range. This price implies a gross divided yield of 7.6%.

Under the Stride Shareholder Offer, Stride shareholders are also eligible to take up more shares in Investore. To take up your rights you need to complete the online form at http://www.shareoffer.co.nz/investore before 5 July 2016.

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About the author

Jarrod Goodall

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Weekly Update Investment Shares Bonds Market Commentary BREXIT


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