What a difference a couple of months can make... - Milford Asset

What a difference a couple of months can make…

David Rigby

Senior Analyst

David is a Senior Analyst, based in the Sydney office, with a particular emphasis on Australian equities, including IPOs. Prior to joining Milford in March 2014, David was a senior equity research analyst with Goldman Sachs and Credit Suisse in London covering the support services sector. In his 10 years overseas his remit spanned small caps to FTSE100 firms in industries as diverse as recruitment, temporary power, equipment rental, distribution, testing & inspection, facilities management, BPO and credit analytics. He holds a Masters of Management Studies and a BSc from Victoria University of Wellington, where he studied Technology Management, Physics and Mathematics.

Coming into the last months of 2019 many share markets were hitting all-time highs almost daily, buoyed by receding trade war concerns and extra liquidity provided by the US Fed. Closer to home, in Australia, a sharp rebound in mortgage lending and auction clearance rates had turned 18 months of housing bust into a renewed property boom, promising green shoots for the Australian consumer and entire economy.

But in the space of a few weeks since December much has changed. A series of unexpected events gave investors new concerns. Domestically, unprecedented bushfires, severe hailstorms and torrential (if drought breaking) rain have wreaked havoc across much of the Eastern seaboard. Internationally, large parts of the world’s second biggest economy (and global growth engine) have been shut down in an attempt to control a highly infectious new virus.

Thinking of the individuals, families and small businesses directly involved, the tragic impact of these events is sadly all too clear and immediate.

For investors and markets, it will take some time to fully assess the numerous repercussions and knock-on effects. Ahead of February’s traditional ‘reporting season’ when many companies report financial results to the end of December, corporates from almost every corner of the ASX have already begun to come forward with their initial estimates of the impact. To highlight just a few,

  • Insurers IAG, Suncorp and QBE lowered profit expectations (in some cases more than once) as they began to receive claims for damage to homes, cars and businesses
  • Flight Centre said it quickly saw a fall in leisure and corporate bookings across Asia, while ferry operator Sealink warned of fewer tourists and suspended services in hotspots like Sydney Harbour, Queensland and South Australia’s Kangaroo Island.
  • Heavy building products supplier Boral highlighted both disruption of construction activity due to poor weather and production outages at NSW quarries due to the proximity of fires.
  • Hearing device manufacturer Cochlear said that the coronavirus outbreak has led to a meaningful fall in elective medical procedures across China, Hong Kong and Taiwan.
  • Super Retail Group, Mosaic Brands and several other retailers have also seen reduced foot traffic and sales declines in affected regions.

Events like these are difficult if not impossible to predict. In business terms they disrupt even the most carefully considered of corporate strategies. However, while such events are certainly acute and sometimes severe, they are often short lived. Over the next few weeks ‘reporting season’ may well see share prices over or under-react, providing investment opportunities for active managers.

Disclaimer: The material contained herein is based on information believed to be accurate and reliable although no guarantee can be given that this is the case. This is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as investment or financial advice. Before making any financial decisions, you may wish to seek independent financial advice.

Disclosure of interest:– Milford has investments in IAG, QBE, Suncorp & Boral on behalf of its clients.