S&P/ASX 200 to open higher – Afterpay bangs down door of ASX 20

The S&P/ASX 200 (XJO) is expected to follow the lead of US markets and open higher on Friday. Here’s what you need to know.

What you missed

The ASX 200 pushed back above the 6,000-point mark on Thursday, rising 1.7% with all sectors benefitting. The most stunning performance came from Afterpay (ASX: APT) which, after hitting another all-time high, has become the 19th most valuable company on the ASX with a market capitalisation of $18.3 billion. Closing at $68.16 yesterday, the Afterpay share price has now jumped 133% year to date; this despite losing $32 million last year.

Similarly overseas, Amazon (NASDAQ: AMZN) has achieved the rare feat of delivering nine straight weekly gains, the latest sending the NASDAQ index up 0.5%. Elsewhere, Tesla (NASDAQ: TSLA) may be on the verge of a long-awaited inclusion into the S&P 500 after delivering over 90,000 cars in the second quarter, beating expectations despite the COVID-19 shutdowns.

This comes as the US economy showed signs of turning the corner, adding 4.8 million jobs in June, sending unemployment down to 11.1%, far better than estimated.

Turning to Europe, the markets benefitted from the US jobs recovery, despite the potential for another round of lockdowns. The Eurostoxx 50 climbed 2.8%, with every company in positive territory. This was led by the banks, including ING Groep (AMS: INGA) +4.3% and Societe Generale (EPA: GLE) +5.5%.

Temple & Webster share price continues to surge

After announcing stronger than expected results just a few short weeks ago, online furniture retailer Temple & Webster (ASX: TPW) jumped on the opportunity to raise another $40 million; the share price was up 17.9% after the trading halt. I prefer Temple & Webster shares over something like Metcash (ASX: MTS), which interestingly announced that only 180 of its 1,400 premises had an online e-commerce offering.

On the negative side, evidence of how difficult the aftermath of COVID-19 may be continues to filter through, with reports that 1 in 10 off-the-plan apartment sales are collapsing as stretched banks pull funding and dwelling approvals down another 16%.

Reports suggested that $236 billion in loans have been deferred, equal to around 8% of all loans, and with a 25-35% fall in commercial and residential property predicted, the prospects of negative equity are incredibly high.

Meanwhile, private hospital operator Ramsay Health Care (ASX: RHC) announced it was back to nearly 100% capacity in Australia after opening all elective surgery hospitals. The 2nd of July also saw the end of 170 years of insurance for AMP (ASX: AMP); a great decision that sets the company up for the future.

It’s raining distributions

Geopolitical risk is on the rise once again, with the EU and UK still struggling to agree on an appropriate Brexit deal and China successfully passing then quickly enforcing its new security law.

Governments around the world have opened their borders to HK residents and the US has responded by removing trade benefits, along with banning the likes of Huawei and ZTE from its telecommunications network. This growing rhetoric stands as the biggest risk to Australia given our reliance on commodity and education exports to the Chinese.

It’s distribution season, so don’t confuse falling ETF, A-REIT and managed fund unit prices for unexpected capital losses. The structures are uniquely different though. Funds are required to distribute all profits, or not pay a distribution if a loss is made (which will be the case for many), while listed investment companies (LICs) are able to declare dividends regardless of performance.

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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