ASX 200 (XJO) morning report – are ASX BNPL shares in trouble?

The S&P/ASX 200 Index (ASX: XJO) is tipped to rebound when the market opens today. Here’s what ASX investors need to know.

What you missed

The ASX 200 finished down another 0.7% on Wednesday, pushed lower by healthcare (-1.7%), industrials (-1.5%) and consumer staples (-1.2%). Cochlear (ASX: COH) was the biggest detractor, falling 2.8% as investors once again flocked to the mining sector as gold prices maintained all-time highs above US$2,000.

It is becoming apparent that the Chinese and their insatiable demand for Australian commodities may once again cushion the blow to our economy. Chinese exports from Australia reached close to 50% in June, with investors having identified the trend and pinning dividend hopes on the likes of BHP Group (ASX: BHP) and Fortescue Metals Group (ASX: FMG). In an income starved world, this strategy has some merit, whilst keeping in mind these are the most cyclical of businesses.

The US market continued its recovery, the S&P 500 adding 0.6% and nearing an all-time high, after the White House scheduled a catch-up meeting with the Chinese regarding their trade deal and it became more likely that a second round of stimulus would be agreed before the end of the week.

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Disney stock rallies

One of my personal favourites, Walt Disney (NYSE: DIS), rallied 8.8% overnight after announcing better than expected subscribers on its Disney+ platform. It seems families stuck at home around the world are turning to Toy Story, Cars and Star Wars to keep the kids entertained.

Despite beating internal expectations that saw streaming subscribers hit 60.5 million, profit fell 147% for the business, as its theme parks (85% revenue decline), media movie studios (55% decline) and media networks (2%) all declined in unison.

Things are, however, looking up with the NBA basketball and MLB baseball seasons restarting, benefitting Disney’s ESPN sports channel, theme parks slowing re-opening and movie theatres expected to restart at the end of 2020. In my view, the pandemic is offering a buying opportunity for a world-class content and advertising business.

Trouble for BNPL and bank shares?

The ASX buy now, pay later (BNPL) sector has been on fire lately, with those who missed out either cursing themselves or flagging concerns about the lack of regulation. It seems that ASIC has their eyes on the sector, but have been hamstrung by the pandemic, amid concerns about overcommitment, penalty and missed payment fees heaped onto unwitting customers.

In a similar vein, brokers are increasingly concerned about the major banks’ ability to deliver competitive returns for investors, with some 10-15% of consumer and small business loans deferred along with $274 billion residential mortgages. I’m not sure that most borrowers on ‘holiday’ know their interest is still compounding and repayments have simply been delayed.

Finally, Telstra (ASX: TLS) announced another asset sale, bringing the total to $1.5 billion, after passing its Victorian data centre to Centuria Industrial REIT (ASX: CIP) on a 30-year lease with a price of $416.7 million. The Telstra share price finished 2.3% lower yesterday.

This article was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. He may maintain positions in the securities mentioned. To get in contact with Drew, click here to visit the Wattle Partners website.

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