The S&P/ASX 200 and All Ordinaries are likely to open in negative territory on Monday morning according to the Sydney Futures Exchange.
What ASX investors need to know
Global sharemarkets will begin the week on a negative footing as it appears the second wave of COVID is upon us. Several of the USA’s largest southern states contributed to an all-time high in reported cases, whilst similar outbreaks in Germany and to a less extent in Melbourne, are making investors nervous once again.
The Dow Jones and S&P 500 finished the week by falling 2.8% and 2.4%, respectively, taking the weekly fall to 3.3% and 2.9%. The story was similar in Australia, with the ASX200 capping a mixed week with a 1.5% rally, driven by the financial sector, with Westpac Banking Corp adding 3.3%. The market finished down 0.7% for the week, with energy (-4.3%) the biggest detractor.
Long-suffering investors and bondholders in Virgin Australia Holdings may be getting some certainty, with Bain Capital announced as the preferred bidder, with a vote by creditors (including bondholders) the only thing standing in its way.
Featured video: how is the ASX 200 calculated?
US banks fall, dividends restricted
Banking regulation was the name of the game last week, with market movements driven heavily by a number of announcements. In the US, it was the loosening of the ‘Volcker Rule’, allowing investments banks to invest more aggressively, which initially benefited the likes of Goldman Sachs and JP Morgan Chase & Co.
However, the Federal Reserve’s announcement on Friday that share buybacks were suspended, and dividends capped at an average or the previous years, saw Goldman’s and JPM’s share prices fall 8.6% and 5.5%, respectively. This is quite an extraordinary decision by the central bank, and I can only imagine how Australian income seekers would react to a similar policy.
Facebook is facing huge pressure on its censorship policy, with many of the world’s largest businesses either ceasing or pausing ad’s on the platform. The likes of Unilever NV and Coca-Cola Co pulled their spend, resulting in an 8% fall in the stock on Friday. There is little doubt that regulatory pressure on social media platforms will follow.
Time to consider gold?
After years of being effectively left out of portfolios, gold bullion is clearly attracting substantial investor flows in Australia, offering a flow-on effect for smaller gold miners.
Saracen Mineral Holdings shares rose 13.6% for the week, as did Perseus Mining, up 9.9%, as the US dollar gold price hit a near-decade higher above $1,750 per ounce. Despite market-leading returns, few investors nor market commentators seem to appreciate the currency impact on the gold price with the AUD value now closer to $2,600. In my view, one of the key drivers of the resurgence has been a focus on total return amid a swathe of dividend cuts.
Embattled food franchisor, Retail Food Group offered an update to investors, confirming they had received concessions on leases for over 400 hundred of their associated stores and that they still expect to deliver earnings of $35 million for the financial year.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.