Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Caught in the crossfire of Trump's trade war

Peter Warnes  |  06 Jul 2018Text size  Decrease  Increase  |  
Email to Friend

The imposition of tariffs by the US and China start on 6 July, one month after the 73rd anniversary of D-Day, which marked the beginning of the end of war in Europe in 1945. The imposition and retaliation could start a trade war and it could be some time before it has a D-Day, despite President Donald Trump chortling, “trade wars are good, and easy to win”. The winner will be the one losing least, there will be no winner.

While Australia is not directly involved it will be caught in the backwash. Any meaningful impact on China’s debt-laden economy which affects consumption or investment will hurt our trade balance and dampen GDP growth. As we consciously whittle away any competitive advantage based on cheap, reliable and available base load energy, we become more reliant on the export of commodities and their unpredictable prices as our manufacturing and processing enterprises become increasingly marginal. Our terms of trade and currency become more exposed.

Australia’s energy policy is in tatters, reminiscent of the mess left after a kindergarten party. A report from the Australian Industry Group entitled, From worse to bad: Eastern Australian energy prices, highlights the situation. Businesses and households will pay an additional $9.4bn to $11.7bn annually for electricity and gas once increased wholesale prices are passed through. Australia is not that fortunate it can absorb cost increases of this nature and hope to play in the world game. To put the hike in energy costs in context, Australia’s beef and wheat exports totalled $13.2bn in 2016-17.

Transparency crucial in Viva IPO

The Viva Energy retail offer is open. Cornerstone investors have put their collective hands up for about $1.2bn. The IPO is set to raise between $2.4bn and $3.06bn for the vendor Vitol Energy Partnership, depending on the extent of the sell-down between 50% and 60%. At 50%, the cornerstone investors account for half the issue and one can only assume their bids are within the $2.50-$2.65 per share range. If not, this information should have already been disclosed. I recall earlier IPOs where managers trumpeted issues were oversubscribed multiple times, only to find the prices were way below the eventual book build price and retail investors got the lot.

The Viva IPO shapes as the largest this year and I only hope transparency is paramount. Analyst Mark Taylor has a positive view of the company with a $3.00 per share fair value and suggests subscribers participate, but it’s a moderate four-star recommendation not an all-in situation.

Research of the Week

This week, on page 4 of the newsletter, Adrian Atkins looks at the challenges facing rail haulage operator Aurizon (ASX: AZJ). The company faces headwinds, resulting in a two-star (Reduce) recommendation.

- Peter

 

More from Ian, our Broome correspondent

Telstra board should cop heaps

The October 2016 $1.25bn share buyback goes down as possibly the biggest single disaster in the use of buy-backs in Australian history, only rivalled by the Pacific Dunlop case in the 90s, which was repetitive folly. The numbers speak for themselves. Telstra spent $1.25bn buying back shares at a 14% discount to the then market price of $5.14 - at $4.42. At 29 June, the share price stood at $2.62, for a loss on this wonderful board’s buy back decision of $519m, a 41% loss!! WOW!

Subscribe to Morningstar Premium and get access to invaluable investment research from Morningstar's award-winning and independent team of analysts, the high-performing Morningstar Income Equities Portfolio, indispensable stock and fund screening tools, and much more.

button

Already a Premium Member? Read it here

 

Peter Warnes is Morningstar's head of equities research. Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

 


Your feedback on this week’s Overview is always welcome. Send your comments to YMW@morningstar.com. We’d love to hear from you.

 


© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written content of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is Morningstar's head of equities research.

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend