Weekly Market Update – 28 February 2022

Russia-Ukraine War Crisis  

From a headline level, markets sold off last week with global equities falling -0.8 per cent in AUD terms as investors gauge the recently developed macro events. 

The major global indexes were all deep in the red mid-week as investors stomached the announcement of Russia commencing its attack on Ukraine. 

Forecasted interest rate rises, rising inflation and now a Russia-Ukraine war has added to the already heightened levels of volatility with the VIX index, a common gauge of fear within the market reaching levels of 37. 

These extreme levels of uncertainty led to a broad-based sell-off in risk assets globally.  

Technology stocks were the hardest hit, with the sector briefly falling into bear-market territory which is typically defined as a drop of -20 per cent or more off their highs. 

Despite this, markets made a dramatic comeback towards the tail-end of the week after US President Joe Biden imposed a new round of harsher sanctions on Russian elites, enterprises, and banks.  

This resulted in the S&P500 closing flat and the tech-heavy Nasdaq falling only -0.3 per cent despite both indexes being down over -4 per cent and -6 per cent respectively throughout the week. 

On a commodity front, gold, which is considered a hedge against inflation and geopolitical risks rallied in a move to safety, with the commodity reaching its highest price in over 8 months at $US1900 a troy ounce. 

In a similar fashion, oil prices surged on the declaration of war, with brent crude, the global oil benchmark peaking at $105 a barrel.  

How will our portfolios go? 

Though it’s hard to comprehend the true impact of the developing Russia/Ukraine situation on financial markets, it’s important to re-iterate a few things that we do know. 

It’s crucial to consider the bigger and longer-term picture. 

Making investment decisions based on emotions is never good, and opportunities will arise for those who are willing to ride out this heightened period of volatility and uncertainty. 

Our Prime Australian Growth SMA remains a robust portfolio with an overweight holding to defensive sectors via healthcare and consumer staples exposure alongside a hedge to gold which should likely outperform during periods of downturns in markets.  

Within the Prime International SMA, we have tilted to more of a value thematic alongside adopting exposure to market-neutral investments that can generate portfolio returns regardless of market movements. 

It’s important to take a step back and see where we stand.  

We’ve gone through several world wars, depressions, and multiple recessions and what has happened?  

Markets have always bounced back. 

This is not the first time things like this have happened and it certainly won’t be the last.  

Stay the course. 

AU Wage Data 

Data out from the Australian Bureau of Statistics revealed that wages rose +0.7 per cent in the December quarter and 2.3 per cent on an annualised basis, which both came in line with consensus forecasts. 

The largest contributors to the figure were the public administration and safety industries which rose +0.7 per cent and retail trade which gained +1.2 per cent. 

Public sector wages saw a growth rate of +0.5 per cent while private wages gained +0.6 per cent for the quarter. 

This is the fastest pace of wage growth seen since the middle of 2019. 

Despite the statistics pointing towards a pickup in wage growth, the cost of living continues to increase at a greater rate. 

This is because wage growth continues to lag well behind the annual rate of inflation with sits at 3.5 per cent. 

Even when utilising the trimmed-mean inflation figure, which is thought to better measure the nation’s underlying core inflation rate via stripping out volatile components, it still highlights that real wages fell throughout 2021. 

Comparing December quarter’s CPI data of +1.3 per cent to the wage growth figure of +0.7 per cent translates to a real inflation-adjusted wage drop of -0.6%. 

Whilst the figure remains considerably better than the latter parts of 2020 which saw an annualised growth rate of +1.4 per cent, it highlights there is still a long path ahead on the wage growth front. 

Though, with unemployment falling to a 13-year low and continuingly tighter job market conditions, this will likely push up wages throughout 2022 as staff will be increasingly harder to find and wages must be raised to compensate.  

Importantly, the data out still sits well below the sustainable three percent-plus the RBA wants to see before lifting the official cash rate from a record low of 0.1 per cent and may indicate a potential pushback on rate hikes. 

Recap on another week of earnings 

Locally the ASX200 plunged -3.08 per cent last week which resulted in the index recording the worst trading session since September of 2020, falling to 6991 pts. 

In terms of sector specific-performance, utilities fared best rising +1.7 per cent whilst materials were the worst performer falling -4.6 per cent, largely due to BHP going ex-dividend which saw the stock drop over -7 per cent. 

In terms of reporting season, several companies held within our Prime Australian Growth SMA reported last week which were: 

  • Hospitality and liquor business Endeavour Group (EDV) reported a net profit after tax of $311 million up 15.6 per cent on the prior comparable period. Online sales were up 24.8 per cent and the company declared an interim dividend of 12.5 cents per share. 

    In the company’s trading update, EDV stated that omicron had put a significant toll on both company’s businesses with team availability and patronage in hotels down significantly though flagged these worries had somewhat eased in February as restrictions were lifted. EDV added a healthy +8.14 per cent for the week as investors took a liking to the update. 
  • Healius Limited’s (HLS) 1H22 update highlighted profit more than tripling for the year, with the company’s revenue rising 44.2 per cent to $1.34 billion whilst profit shot up 271.3 per cent to $233.2 million due to strong demand in its COVID-19 testing services throughout the omicron and delta virus outbreaks. 
     
    HLS announced its largest dividend in over six years due to the strong profit. The stock traded widely throughout the week, with it falling -7 per cent before the results then gaining upwards of +10 per cent the consecutive day after the company’s results were announced. HLS closed -0.69 per cent down for the week. 

    Though the sheer volume of PCR testing has fallen quite significantly since Rapid Antigen Tests were introduced, PCR testing remains in high demand with 80,000 to 90,000 tests per day. We believe that Healius’s PCR testing will have a place throughout the endemic stage due to long-COVID and the accuracy issues concerning RATs, all of which represent attractive tailwinds for the company. 
  • Leading Australian dairy and food producer Bega Cheese Limited (BGA) posted record revenue and profits with half-year profits jumping 20 per cent to $35.5 million. The dairy giant noted that the spread of omicron had impacted its local supply chain and flagged a financial impact of $20 million worth of disruptions, though stated that February was already showing signs of recovery in the company’s supply chain. 

    The recent acquisition of Lion Dairy and Drinks effectively doubled BGA’s revenue with the new division contributing revenue of $787 million and resulted in the company declaring an interim dividend of 5.5 cents per share, up 10 per cent on the corresponding year. 

    Unfortunately, BGA slipped following the results, with it being caught in a broader market selloff which saw the stock fall -9.83 per cent for the week. Notwithstanding the market’s disappointing reaction to the results, we continue to believe BGA’s acquisition of Lion Dairy and Drinks further diversifies Bega’s dairy exposure, increases its scale, and accelerates the shift towards branded products, which should drive greater returns and margins.  

In broader market news, Cimic Group (CIM) shares skyrocketed 33% off the back of news that Hochtief Australia, a majority shareholder made an off-market takeover bid. The unconditional bid is a final cash offer of $22 per share, CIM was trading at $16.40 before the offer. 

Australian e-commerce giant Kogan Limited (KGN) shares were victim to a trading halt after an operational error was made by the ASX resulting in the misprocessing of market announcements and the cancellation and refund of market transactions.

Looking ahead

Monday 28th February 2022 – Friday 4th March 2022

  • Monday: N/A
  • Tuesday: AU RBA Interest Rate Decision
  • Wednesday: AU RBA Growth Rate YoY (Q4), US ISM Manufacturing
    PMI (Feb) 
  • Thursday: AU Balance of Trade (JAN) 
  • Friday: UK Consumer Confidence (FEB) 

Friday 25th February, 5pm values

 IndexChange%
All Ordinaries 7273-229-3.1%
S&P / ASX 2006997-224-3.1%
Property Trust Index1585-37-2.3%
Utilities Index70541161.7%
Financials Index6276-282-4.3%
Materials Index16808-808-4.6%

Friday 25th February, closing values

 IndexChange%
U.S. S&P 5004384360.8%
London’s FTSE7489-24-0.3%
Japan’s Nikkei26476-646-2.4%
Hang Seng22767-1560-6.4%
China’s Shanghai3451-39-1.1%

Key dividends

Monday 28th February 2022 – Friday 4th March 2022

  • Monday: Div Ex-Date – Aurizon Holdings Ltd (AZJ), Cleanaway
    Waste Management Ltd (CWY), Fortescue Metals Group Limited
    (FMG) Div Pay-Date – Charter Hall Group (CHC), Janus Henderson
    Group PLC (JHG), Waypoint REIT Limited (WPR) 
  • Tuesday: Div Ex-Date – Endeavour Group Limited (EDV), Bendigo
    Convertible Preference Shares 4 (BENPG), Macquarie Group Capital
    Notes 4 (MQGPD), Origin Energy Ltd (ORG), Suncorp Group Limited
    Capital Notes (SUNPF), Suncorp Group Limited Capital Notes 2
    (SUNPG), Suncorp Group Limited Capital Notes 3 (SUNPH), Suncorp
    Capital Notes 4 (SUNPI) 
  • Wednesday: Div Ex-Date – Macquarie Group Capital Notes 5
    (MQGPE), Telstra Corporation Ltd (TLS), Treasury Wine Estates Ltd
    (TWE) 
  • Thursday: Div Ex-Date – Coles Group Ltd (COL), Macquarie Bank
    Capital Notes 2 (MBLPC) Div Pay-Date – BKI Investment Co Ltd
    (BKI) 
  • Friday: Div Ex-Date – Macquarie Group Capital Notes 3 (MQGPC),
    PERLS VII (CBAPD), PERLS IX (CBAPF), PERLS X (CBAPG), PERLS XI
    (CBAPH), PERLS XII (CBAPI), PERLS XIII (CBAPJ),  

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

Mark JohnsonT: (03) 8825 4738Michelle BromleyT: (03) 8825 4751
Livio Caiolfa T: (03) 8825 4748Nicole LewisT: (03) 8825 4734
Marcus AingerT: (02) 9134 6292Nicholas MillerT: (03) 8825 4722
Dylan CresswellT: (03) 8825 4707Gina McIntoshT: (07) 3557 2557
Jarrod Rodda T: (03) 8825 4729

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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