The S&P/ASX 200 (XJO) is edging higher this morning as the market brushes aside COVID-19 concerns and continues its positive start to the new financial year.
What happened overnight?
Most global markets started the financial year on a positive note, with the ASX 200 adding 0.6% despite reports that just 30% of jobs lost during the COVID-19 pandemic have been replaced.
US markets have provided a positive lead this morning. The NASDAQ pushed to all-time highs, rising 0.9%, and the S&P 500 gained 0.5%.
FedEx Corporation (NYSE: FDX) led the pack, posting an 11% jump. The company announced it had moved through the crisis relatively unscathed with revenue slightly below 2019 as the cancellation of domestic flights meant more packages ended up on FedEx planes.
European markets were generally weaker despite Pfizer (NYSE: PFE) announcing some success in the creation of antibodies from its COVID-19 treatment. PMI, which offer a leading indicator for the economy, improved across the board, with Germany improving to 45 from 36 prior, and France entering expansion again at 52 points.
Signs of a return to normal continued, with German retail sales improving 13.9% for the month, however, talk has now moved towards the risk of a no-deal Brexit.
How did the ASX start the new year?
Despite reporting season not expected to begin for several weeks, a number of ASX companies provided interim updates.
Lendlease (ASX: LLC) cancelled the dividend from its operating company, flagging a loss of $230-$340 million. It also reported a devaluation in its managed property assets of $130 million on a $4 billion portfolio. I’d suggest there is a great deal more pain to come due to the company’s large holdings of retail and residential property.
Telstra (ASX: TLS) continued its simplification, announcing the sale of its $400 million data centre in Clayton, with the normal players including Charter Hall (ASX: CHC) all interested.
Meanwhile, Home Consortium (ASX: HMC) entered a trading halt after announcing a capital raising of $170 million to purchase three Woolworth’s anchored tenancies as well as an aged care facility. The aged care facility is owned by the company’s own CEO, meaning it will need to be approved by shareholders to ensure sufficient due diligence was completed.
Webjet (ASX: WEB) quietly raised a further $136 million in debt via Singapore markets in the form of a convertible note, adding 7.5% despite a worsening outlook as Victorian hotspots enter lockdown.
And in other news, WiseTech (ASX: WTC) is the target of another short attack, falling 4.1% amid growing concerns of the underlying profitability of the companies acquired as part of its roll-up strategy. I’ve seen this play out before and suggest investors err on the side of caution and avoid these companies until there is more certainty.
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Post-COVID trends
The 2019-20 financial year will be remembered as the time when market capitalisation shifted from old fashioned business models to those of the future. With billions shifting out of energy, banks and property into healthcare, IT and staples businesses, the question for investors is which trend is sustainable.
In my view, communications and IT remain the most important part of portfolios post-COVID-19. This is reflected by the top-performing companies in 2020 being Mercado Libre (NASDAQ: MELI) up 101%, Tesla (NASDAQ: TSLA) up 100%, Paypal (NASDAQ: PYPL) up 82%, Nvidia (NASDAQ: NVDA) up 44%, and Apple (NASDAQ: AAPL) up 43%. The Australian story was similar, with Afterpay Ltd (ASX: APT) adding 143% and the major banks down 35%, on average.
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.
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