ASX 200 morning report – APT shares jump

The local market and ASX 200 (ASX: XJO) is tipped to start trading slightly higher on Tuesday with the Sydney Futures Exchange’s SPI futures contracts pointing to a +27 open.

May Day

With May Day holidays around the world, pent up selling hit the Chinese (-4.2%) and European sharemarkets (-4.2%) on Monday. The ASX200 staged another intra-day recovery, bouncing back from over 2% down to finish the day 1.5% higher.

Shares of Buy Now Pay Later or modern-day layby provider Afterpay Ltd (ASX: APT) shot as much as 35% higher at one stage as Chinese internet giant Tencent announced it had acquired a 5% stake in the business. The investment is expected to assist an expansion into China, the announcement sending the stock near all-time highs even as an expected spike in bad debts appears on the horizon.

Trade War effects

Increasing rhetoric from the White House regarding the potential for more tariffs in response to China’s poor communication around the Coronavirus’ source is coming at the worst possible time.

Hong Kong experienced its worst GDP result on record, falling 8.9% for the quarter and some are now suggesting we are only early in this initial sell-off. Only time will tell. The S&P 500 was able to post a gain of 0.4% overnight as oil prices showed signs of settling with a specialist at Bank of America suggesting equities market returns over the next decade will likely average a much lower 6% per annum.

COVID-19: Buffett not a buyer

Warren Buffett and his business Berkshire Hathaway are well-known for capitalising on the financial market stress caused by the GFC, making sweetheart deals with a number of companies. There was no such assistance this quarter.

In fact, Berkshire reported that the value of their equity portfolio had fallen 27%, sending the shares down 19% for the year to date. The first-quarter loss of $49 billion coincided with Buffett selling all four of his US airline holdings based on a very difficult outlook.

However, the company still has some $137 billion in cash on its balance sheet. In Australia, Westpac Banking Group (ASX: WBC) followed ANZ Banking Group’s (ASX: ANZ) lead in deferring its dividend, reporting a 70% fall in cash earnings and a further $1.9 billion in bad debt provisions due to COVID-19.

This update was written by Drew Meredith, Director of Wattle Partners.

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