3 Potentially Attractive Themes Amidst Covid Induced Market Volatility

Tuesday, 28 April 2020, 3:45 pm
Article: Kalkine

The contagious coronavirus black swan event has kept the world in limbo, dampening economic prospects and financial markets, with policymakers going great lengths to combat the severe effects. The virus continues to cast dark shadow on businesses deferring their distribution and expansion plans, while struggling for maintaining cash flows.

New Zealand has been reeling through an economic paradigm with massive shift in business models amidst ongoing lockdown. The halted business operations and supply chain disruptions have sent ripple effect to several industries, striving to maintain their survival in the unprecedented market scenario.

The border restrictions and travel bans have marred the travel and aviation industry, while several other sectors have been contemplating their next move to thrive amid the challenging business conditions.

The wave of Level-3 alert, active from 27 April midnight, is expected to ease restrictions and enhance business activities in an attempt to open the economy in parts, providing a positive nudge to many industries.

Notably, a range of diverse sectors in New Zealand have responded differently to the lockdown restrictions and social distancing measures, with some gainers progressing well backed by strong balance sheets and robust cash flow, while others with attractive intrinsic value based on the burgeoning demand for their products and services.

Let us look at the three sectors that are holding a positive report card amidst the sluggish corporate growth, offering some pockets of opportunities for investors and market players.

Healthcare Sector

Several healthcare players are in limelight amidst the virus cure/prevention race, undertaking significant clinical trials on humans/animals. Additionally, the demand for protective medical gears, sanitizers and other healthcare essentials has skyrocketed.

Notably, NZ medical supplies export from China has grown radically. Responding to the growing concern on protective equipment, Director-General of Health, Ashley Bloomfield hinted few days prior to lockdown on the plentiful availability of the personal protective equipment such as masks, gloves, visors, gowns, etc.

Meanwhile, on 24 April 2020, Helius Therapeutics has signed a White-Label Supply Deal with Australia based MediPharm Labs, with plans to distribute the medicinal cannabis products across New Zealand’s licensed pharmacies under its brand.

Another healthcare player, Metlifecare has moved its Palmerston North along the lines of digital adoptions by organizing online activities with the ‘wellbeing hub’ taking care of the grocery and ready to meal access through the phone call system.

Communication Services

The communication services sector witnessed a steep rise in demand with the growing adoption of tech-based solutions for ensuring smooth operations amidst the restrictive measures. While the travel restrictions have axed the roaming component of the business revenue, the income from broadband usage continues to grow.

It is worth noting that the major NZ telecom companies including Vodafone, Chorus and Spark have not issued any change to their existing earnings guidance, apparently reflecting some kind of resilience to the ongoing economic turmoil.

In the wake of the growing demand for internet steering through the work-from-home and online tutorials scenario, the telecom companies have launched telecom-related ‘relief packages’ along with data and voice bonuses. Although the companies are not able to install new cell towers amidst prevailing restrictions, they are consistently involved in upgrading the old ones.

Consumer Staples

NZ market has seen steaming demand for the essential goods with the shoppers stockpiling the daily needed products, providing a boost to the avenues of consumer stores and e-commerce players. The food and beverage items have now become the key focus areas of consumption as people try to circumvent the lockdown’s austerity.

Several companies are stepping up with some new business strategies or vertical/horizontal integrations. Auckland-based Service Foods has recently launched its new online supermarket named Service Foods Home, well in place with the credit card system. The company has planned to extend its online food delivery footprints across New Zealand with the launch of other centres over the next months.

The industry is also talking about the Euro 15 million investment by a dairy nutrition company, Fonterra, in a German food startup called YFood.

Market Performance

Amidst the lockdown, the telecommunication sector has shown a positive return, with S&P/NZX All Communications Services index offering a month-to-date return of 6.01 percent as on 24 April 2020. While, Consumer Staples Sector has returned 13.71 percent return over the same period.

Notably, the Healthcare sector has rallied by around 5.84 percent to 2,320.68 in the past one month.

In the past one month to 24 April 2020, the share price of the healthcare player Fisher & Paykel Healthcare Corporation Limited (NZX: FPH) has gone up by 2.19%, while the stock of the company operating in the consumer staples space - A2Milk Company Limited (NZX: ATM) has surged up by 26.85% in the same period. Besides, the communication services players, Spark New Zealand Limited (NZX: SPK) and Chorus Limited (NZX: CNU) have posted returns of 18.40% and 18.10% respectively on the New Zealand stock exchange over the last one month.

While market players are looking for potentially attractive business opportunities, a mix of fundamental and technical analysis approach may be adopted while cherry-picking stocks in the industries well insulted by the virus inducted market volatility.

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