ASX bounce, new lockdowns

And Qantas share prices take a hit

Agribusiness
There are new coronavirus lockdowns in Melbourne and record cases in the US.

There are new coronavirus lockdowns in Melbourne and record cases in the US.

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Investors have plenty of cause for concern, writes Christopher Hindmarsh.

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Equity markets finished the week higher with the S&P 500 and ASX/S&P 200 up 4.6 per cent and 2.6pc respectively week on week.

US equity markets may have been buoyed by a big improvement in the US labour market, however an acceleration in coronavirus cases and the prospect of an end to unemployment benefits in the US by the end of July are a cause of concern for investors.

Texas was one of the states pushing a quick re-opening agenda, however, in light of the increase in cases they have reimposed some restrictions reducing capacity of bars to 50pc.

Additionally, Arizona's governor anticipates its hospitals may hit surge capacity soon and Florida recently announced a record 11,400 new cases.

Domestically, we have also seen a reimposition of restrictions with Melbourne being forced into lockdown in order to contain the spread of coronavirus.

Borders have also closed between NSW and Victoria.

The Morrison government has also warned that we should expect further retaliatory tariff increases from China after Australia was offered as a safe haven for Hong Kong citizens.

We are yet to see if these issues will impact on Australian equity markets going forward.

The Qantas share price has shed 8.8 per cent since the company announced it was going to the market for cash.

The Qantas share price has shed 8.8 per cent since the company announced it was going to the market for cash.

In recent weeks, a significant headline was the decision from Qantas to raise approximately $1.86 billion dollars in equity. Typically, companies raise capital to pay down debt, make an acquisition or add cash to its balance sheet.

Other companies such as Altas Arteria, National Australia Bank, Bapcor Limited, NextDC Limited and Cochlear Limited have also raised capital over the past few months.

The purpose of the Qantas capital raising is to reduce debt by approximately $400 million and accelerate its path to recovery by restructuring and 'rightsizing'.

Under the restructure approximately 6000 people are expected to lose their jobs.

It also includes the grounding of 100 aircraft until at least financial year 2021, including 12 Qantas A380s. The Qantas capital raising gives existing shareholders the option to purchase shares at a discount to the current market price.

This news was not taken well by shareholders with Qantas' share price falling approximately 8.8pc since the announcement.

  • This article does not take into account the investment objectives, financial situation or particular needs of any particular person. Before acting on any advice contained in this article, you should assess whether it is appropriate in light of your own financial circumstances or contact your financial adviser. Christopher Hindmarsh is an adviser at JBWere Limited.
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