Investment Market Update – March 2022

Geopolitics and rising global interest rates drive global markets lower over February

Russia’s invasion of Ukraine in late February shocked the world and is having a significant humanitarian impact. There are economic and financial implications too, and markets tumbled as investors assessed the potential economic impact of sanctions on Russia because it is a key exporter of commodities.

The Australian share market was one of the best performing markets because of its high exposure to the energy and materials sectors. Meanwhile, European equities were the worst performer – a possible consequence of the region’s heavy dependency on Russian energy imports.

Global Share markets
 
February 2022
Financial Year 2022
12 Months
Australia
ASX 200
1.1%
-3.6%
5.6%
US
Dow Jones
-3.5%
-1.8%
9.6%
 
S&P 500
-3.1%
1.8%
14.8%
 
Nasdaq
-3.4%
-5.2%
4.2%
United Kingdom
FTSE
-0.1%
6.0%
12.5%
Japan
Nikkei
-1.8%
-7.9%
-8.4%
China
Shanghai
3.0%
-3.6%
-1.3

February saw the end of the December half year earnings reporting season. One of the main highlights of the reporting period was that given the very strong recovery in earnings and profits over the last twelve months, many Australian companies are sitting on record levels of cash reserves.

As of close of February, 164 ASX200 companies had reported results revealing that their aggregate cash holdings had risen 60% to a record $246 billion as of December 2021. Cash reserves were boosted by increasing profits in the December half.

The high levels of cash being retained by corporates provide a cushion to the current concerns around higher costs, as inflation leads to rising prices for many companies. 

It was also a decent reporting season for generating profits. Just under 67% of companies reported a rise in profits, which is above the long-term average of 60%. Almost 88% of businesses delivered a statutory profit, the highest since the COVID pandemic.

The good news continued with rewards to shareholders via higher dividend payouts. 52% of companies increased their dividend, 11% retained the dividend at the same level, and 19% did not declare a dividend. Companies that did not pay a dividend were mostly those still exposed to uncertainty around COVID, including the airlines, gaming, and travel industries.

Expectations around profits for the next twelve months remain positive, with broker forecasts suggesting that company earnings will increase by 7.5% over the period.

The good news continued with rewards to shareholders via higher dividend payouts. 52% of companies increased their dividend. Expectations around profits for the next twelve months remain positive, with broker forecasts suggesting that company profits will increase by 7.5% over the period.

News over the month

Alumina reports a 28% jump in net profit

In February management announced another increase in profits, with the company producing a net profit of US$188 million, compared with US$147 million 12 months ago. Dividends paid over the 12 months were 8.7% higher compared with the previous 12 months.

Aluminium prices continue to reach record highs due to stronger demand, supply disruptions (China), and higher energy costs. Alumina prices have also increased and currently sit at US$420 per tonne.

Alumina is well placed to support ongoing growth in demand for aluminium for electric cars and the construction sector.

Alumina’s shares were up 7.7% in February.

Westpac defies market expectations and delivers improved earnings

In early February Westpac released its first-quarter earnings update, announcing a net profit of $1.82 billion, a jump of 80% compared to the average quarterly earnings over the last half of 2021. Westpac also said its lending book had increased by $5 billion over the quarter.

Management announced they are commencing their business simplification plans and changing their operating structure, with the key aim to improve efficiency and move staff closer to the customers they support.

Westpac shares were up 12.3% for the month.

Dexus delivers an 82% improvement in net profit as staff return to the office

The company announced that net profit after tax jumped 82% to $803 million. Dexus, a real estate company focusing on office properties, said that occupancy remained very high at 95.1% for its office properties and 98.6% for its industrial properties. Rent collections remained strong at 97.9%.

Dexus shares were up 6.5% over the month.

Kauri Wealth Management is a Fee for Service investment advisory business and as such my advice is built around ongoing personal relationships with my client base. Personalised independent advice is backed up by a breadth of industry knowledge.

I accept a limited number of new clients each year and would be happy to discuss this further with you. Please don’t hesitate to contact me.

Russell Lees
Senior Adviser
Phone: +61 439 852 963
Email: russell@kauriwealth.com.au

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