After early losses, the ASX has finished the day in the green – albeit marginally.
The S&P/ASX200 is up just 5.10 points today to 7,125.30. Over the last five days, the index has gained 2.20%, but is down 4.29% for the last year to date.
The market was initially hit by Australia and New Zealand Banking Group (ASX:ANZ) Ltd’s profit warning. ANZ fell 5.4%, but managed to claw back some of today’s losses to be down 2.03% by day’s end.
Magellan Financial Group Ltd (ASX:MFG) was a big loser, plunging 10.80% after its chair and chief investment officer Hamish Douglass went on medical leave to prioritise his health.
The top-performing stocks in this index are Graincorp Ltd up 12.76% and Flight Centre Travel Group Ltd up 7.57%.
What happened at Magellan?
Due to personal and professional periods of intense pressure, Douglass has taken an absence of leave on medical grounds.
Commenting on these developments, Magellan’s chairman, Hamish McLennan, stated: “The board wholeheartedly supports Hamish’s decision to prioritise his health and Magellan is committed to providing him the time and support he requires.
“I am grateful that Chris Mackay has agreed to oversee the portfolio management of Magellan’s global equity retail funds and global equity institutional mandates, alongside Magellan’s excellent existing global portfolio managers.
“I am also delighted to welcome back Nikki Thomas to Magellan as a co-portfolio manager. Nikki was instrumental in the development of the Magellan investment team’s processes, and she has a deep knowledge of Magellan’s investment universe.
"She is also very highly respected by a number of Magellan’s investors and will add further depth to our significantly resourced investment team. I am immensely confident about the investment teams that Hamish Douglass, Gerald Stack, John Sevior and their teams have built over a number of years”.
Markets underestimate earnings
The ANZ released a soft earnings update today, a trend that is likely to continue during earnings season.
GS analyst Andrew Lyons noted ANZ’s update was "softer" than implied by his 1H22 forecasts.
The upside is several areas of softness including NIMs (Net Interest Margin), expenses and Markets income look to be "largely contained to the 1Q, with performance for the remainder of FY22 likely more consistent with our expectations."
Lyons has a Buy rating and $31.82 target, yet notes there is downward pressure due to a macro slowdown, which affects consumer and business borrowing.
Morgan Stanley (NYSE:MS) has cautioned that ANZ won’t be the only one to deliver a soft earnings report. Supply chain issues, labour shortages and COVID-19 disruptions have not been completely factored into reports, it warns.
“What keeps us from accepting that all is in the price is the relative staleness of earnings estimates and the fact that bottom-up margin assumptions appear to factor little of this impact in expectations with outer-year forecasts showing elevated margin outcomes [versus] pre-COVID history,” Stanley’s head of Australian strategy Chris Nicol said.
“In our experience, earnings downgrades driven by margin resets carry share price reactions often deeper and more sustained. Litmus test ahead.”
UBS expects the earnings downgrades to continue.
"With this profit season capturing the Omicron lockdown months of December and January, we expect the skew towards downgrades to continue throughout February," UBS equity strategist Richard Schellbach said.
Schellbach referred to the coming season as a “minefield”.
International borders set to reopen
Prime Minister Scott Morrison has outlined his plans for international borders to reopen by February 21 (that’s this year!).
In the wake of Morrison’s announcement, travel stocks made up four of the five best performing ASX200 stocks on Monday.
Flight Centre rose 9%, Corporate Travel was 8% higher, Webjet gained 6% and Qantas rose 5.5%.
Borders will reopen based on health advice delivered to the National Security Committee today.
“The condition is you must be double vaccinated to come to Australia,” Morrison said.
“That’s the rule. Everyone’s expected to abide by it.
“If you’re double vaccinated, we look forward to welcoming you back to Australia and I know the tourism industry will be looking forward to that and over the next two weeks they’ll get the opportunity both for visitors to be coming and for them to be gearing up to welcome international visitors back to Australia,” he said.
Prospective travellers will need more than just a visa to get in.
“I think events earlier in the year should have sent a very clear message to everyone around the world that is the requirement to enter into Australia.”
The tourism sector now has two weeks to get ready.
According to Home Affairs Minister Karen Andrews, “Our tourist providers have had to rely on domestic travellers. Now Australians have certainly stepped up and travelled when they can but as of February 21, we will be welcoming back to Australia international tourists and that is going to be a such a welcome relief for our many tourist providers all around Australia.”
Other winners will be cafes and restaurants and clothes retailers, which will carry over spending increases into those sectors.
Over the 2021 calendar year, real spending was up 21.8% (cafes and restaurants) and 18.3% (clothes retailers), respectively, over the year, according to data obtained by CommSec from the Australian Bureau of Statistics.
Despite this, retail trade fell by 4.4% in December following a 13.6% gain in the previous three previous months.
Trade rose by a record 8.2% in the December quarter, having fallen 4.4% in the September quarter.
"The retail trade data continues to reflect the cycling of lockdowns and easing of restrictions," CommSec's chief economist Craig James said.
"We won’t get a true picture on consumer spending for a few months. But looking over the entire 2021 year, retail trade rose by a healthy 5.6% with volumes up 3.5%."