Jarden Brief: Australia's tax regime in the firing line

Australian offshore banking unit regime is facing pressure from Europe. Photo / Getty Images

Keeping you up to date with the latest market moves, in association with Investment firm Jarden

New Zealand:

The S&P NZX50 index fell by 0.4 per cent yesterday, with the decline led by healthcare and energy sectors, respectively down 2.6 and 0.7 per cent.

The top-performing sectors were utilities and financials which rose 1.9 and 0.3 per cent.
Utilities companies Meridian Energy and Mercury NZ each rose 3.1 per cent. Mark Verbiest, Chairperson of the Meridian Board, increased his holdings last Wednesday by 10000 shares. Some investors may take this as an indication of underlying management confidence in a company.

The fall in the healthcare sector was led by Pacific Edge and Fisher and Paykel Healthcare, which were the biggest underperformers of the NZX50 yesterday.

Cancer diagnostics company - Pacific Edge - fell 4.2 per cent. CEO, David Darling, announced his intentions to retire in 2022.

Fisher and Paykel Healthcare lost some ground yesterday, falling 3.7 per cent. This follows a strong month of performance, and a recent peak in price on Thursday.
Synlait Milk CEO, Leo Clement, has resigned. Until a permanent appointment is made, co-founder John Penno will fill the position. Synlait Milk fell 2.0 per cent yesterday.

Tomorrow, the Reserve Bank of New Zealand Monetary Policy Review decision will be released. It will contain details on whether the Official Cash Rate will be maintained at 0.25 per cent.

INTERNATIONAL MARKETS:
US Markets

US markets in the red this morning as the S&P 500 (-0.1 per cent), Nasdaq (-0.3 per cent) and Dow Jones (-0.4 per cent) traded down.

Sector gains include Consumer Non-Cyclicals and Consumer Cyclicals each leading the way with 0.2 per cent increases.

These sector gains were well supported by the single stock winners, with artificial intelligence company Nvidia and popular electric car maker Tesla jumping 6.1 and 3.4 per cent at the time of writing. Nvidia traded favourably as investors reacted to its first quarter guidance coming in above expectations, while Tesla continues to trade with significant volatility.

In contrast, downward pressure on indices was drawn from sector losses of Technology (down 0.67 per cent) and Energy (down 1.2 per cent).

The worst performing stock at the time of writing was fibre appliance manufacturer IPG Photonics Crop, which slumped to a 6.3 per cent loss, offsetting some of its early April gains.

Joining IPG was travel company and cruise operator Carnival Corp, down 5.6 per cent amid fresh concerns around the potential opening of COVID free cruise ships.

Political developments will likely be at the source of market movements in the coming months as US investors come to terms with the potential implications of President Biden's plans for a global minimum tax rate.

Ongoing talks on the introduction of a global minimum corporate tax rate continue to divide lawmakers and politicians. The tax plan itself would allow the profits of the world's largest multinationals to be taxed as a percentage of sales in each country, where previously tax loopholes allowed the companies to escape largely tax free.

Asian Markets

Index highlights from Asian markets include the Shenzhen falling 2.1 per cent, the Shanghai Composite down 1.1 per cent, and the Nikkei down 0.8 per cent.

News coming out of Asia on the weekend involved the conclusion of an investigation into American listed E-commerce giant Alibaba, over potential breaches of anti-trust laws. The investigation lasted just four months, which resulted in Beijing handing out a record breaking US$2.8 billion fine for what was described as multiple breaches of anti-competitive behaviour.

Although seemingly a large amount, US$2.8bn only amounts to 4 per cent of the company's revenue in 2019. As with similar fines handed out to Facebook and Google last year, this will mostly be viewed as a 'slap on the wrist', as tech giants continue to grow in size and dominance despite regulatory hurdles.

Alibaba would also be subject to increased taxation expense under the proposed global minimum tax rate.

Commodities

In commodities today, Gold was up 0.8 per cent at US$1,731.40 per ounce. Bitcoin currently trading higher at $59,776.5 as it closes on its previous record high above US$60,000. Ethereum was down 1.1 per cent to US$2,122.7 to slow this month's momentum. WTI Crude oil rose 0.6 per cent to US$59.69 per barrel. Lastly, US 10-year treasury yields continue to rise, currently trading at 1.68 per cent.

Australian Markets:

After hitting its 52-week high at the end of last week, the ASX200 decreased by 0.3 per cent in Monday's session.

The only two sectors which posted gains were Health Care and Telecommunications, both up 0.7 per cent. The biggest losses were recorded by Australian real estate investment trusts and Materials, both down 1.2 per cent.

Yesterday, the top performer was hearing implants producer Cochelear, increasing 2.4 per cent. Infection prevention company Nanosonics also rose 2.4 per cent, while the Bank of Queensland was up 2.1 per cent, in anticipation of releasing its financial results for the half-year ended 28 February 2021 this Thursday.

The biggest losers were resources companies Nickel Mines, dropping 7.7 per cent, Ramelius Resources, down 5.0 per cent, and NRW Holdings, decreasing 4.3 per cent.
Energy company Santos (+0.9 per cent) offered a A$6 million "growth projects incentive" to its current CEO Kevin Gallaghar, sparking controversy. The move came after Gallaghar was in talks to take over at oil and gas producer Woodside (+0.1 per cent), and is now tying him to Santos until the end of 2025.

The European Union has put pressure on the Australian Government to abandon its special tax break for banks and fund managers. The Australian offshore banking unit regime currently taxes financial institutions based in Australia at a 10.0 per cent rate for profits made offshore, instead of the usual 30.0 per cent corporate tax rate. The A$350 million dispute could lead to the EU banning institutional investors from buying securitised debt in Australia, by classifying Australia as a country with a harmful tax practice. If the Government does decide to scrap the regime, the loss of tax income is estimated to be A$70 million in 2023/24, because some companies would cease to do business in the country without the tax break.

• For more information on the latest market moves, get in touch with Jarden.

Disclaimer: This Morning Brief has been prepared in good faith and reflects opinions and views at the time of publication, using external sources, systems and other data and information we believe to be accurate, complete and reliable at the time of preparation. We make no representation or warranty as to the accuracy, correctness and completeness of that information, and will not be liable or responsible for any error or omission. This Morning Brief is not to be relied upon as a basis for making any investment decision. Please seek specific investment advice before making any investment decision. Jarden Securities Limited is an NZX Firm, a broker disclosure statement is available free of charge at www.jarden.co.nz. Jarden is not a registered bank in New Zealand. Full disclaimer available at: https://www.jarden.co.nz/limitations-and-disclaimer