Business chiefs rocked as volatile markets make waves during reporting season

Some CEOs have warned of heightened risks while others eye fresh opportunities as global market tumbles.

A person is reflected in a window as stock prices are seen at the ASX in Sydney. Picture: AAP

Australian business chiefs are finding different answers in the volatility sweeping local and global markets, with some flagging heightened risks and even recession, while others see opportunity.

Several major Australian companies announced financial results on Thursday, releasing full and half-year figures as the local share market followed the big falls on US indexes overnight. Falls on American markets were sparked by the “inversion” of the yield curve of 2-year and 10-year US government bonds; a signal that normally flags recession. The ASX had shed $51 billion in value by midafternoon, with falls in other Asia-Pacific markets adding momentum to the local sell-off.

“I think many people would say technically we’re entering a recession globally and in West Australia we’ve been in that place for a little while,” Woodside chief executive Peter Coleman said after delivering first-half earnings.

The backdrop of tumbling markets made concerns about volatility a common topic for business leaders discussing results with investors and the media. But takes on what’s signified by the current instability — fuelled by the US-China trade war, Britain’s Brexit troubles, unrest in Hong Kong and a raft of other factors — have varied.

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For markets operator ASX, global turmoil has been a chance to highlight Australia’s relative stability. Trading volumes across the ASX business boomed in 2018-19, with share volumes up 23 per cent, futures volumes up 10 per cent and over-the-counter derivative clearing surging by 54 per cent, the company reported on Thursday.

RBAs Debelle:"Businesses are waiting to see how the uncertainty [re trade] resolves rather than
invest. It is too risky to commit to a..project or buy a large piece of plant if the economics of the decision can get completely undermined by a policy decision," Precisely right

— Shane Oliver (@ShaneOliverAMP) August 15, 2019

ASX chief Dominic Stevens said the change in direction on interest rates — from forecast increases to renewed cuts — had prompted a big increase in activity in ASX markets, as companies and investors sought to hedge their exposure.

But he also said the Australian economy was benefiting from looming surpluses in trade, the federal budget and the current account, as well as having low rates, high commodity prices and an accommodating exchange rate.

That contrasted with protracted Brexit negotiations, US-China trade tensions and the situation in Hong Kong. “So if you put Australia in the context of the world it is feeling at the better end of that,” Mr Stevens said.

Meanwhile, Telstra boss Andy Penn said he wasn’t overly worried about the current market jitters. The importance of connectivity to business insulated Telstra from adverse economic conditions, he argued. Speaking to media after the release of the company’s 2019 results, which saw Telstra’s net profit drop 40 per cent, Mr Penn said telecommunications services were now as important as any basic utility. “In the context of an economically challenged market, telecommunications is always going to be an important, safe and in-demand product,” he said.

In contrast, packaging producer Orora delivered a downbeat assessment of the US and Australian economies as its shares dropped 11 per cent on Thursday. “From what we see the US economy has come off a bit,” chief Nigel Garrard said. The tepid conditions were due to a range of factors from the government shutdown in January, to market tensions from the US-China trade war.

“In January we had the government shutdown and that shouldn’t be underestimated,” Mr Garrard said. “There’s no doubt there are cost pressures on products that are imported from China and we have had to deal with that. And I think there’s just a general uncertainty that perhaps we didn’t see 12 months ago in North America.”

The packaging company is yet to see any bounce from either lower interest rates or tax cuts on the Australian economy which it says remains flat. “If I look at Australia I’d say they are relatively benign conditions. And we have not yet seen any of the pick-up from our customers from lower interest rates or reduced tax rates,” Mr Garrard said.

Appliance maker Breville is also seeing trouble in the US, as sanctions begin to seriously affect its range of products, which include popular items like coffee makers and pizza ovens.

Ten per cent of Breville products sold in the US already carry a 25 per cent tariff, the company reported. But new tariffs, set to be imposed by the end of the calendar year, will leave just 15 per cent of its Chinese imports to the US unaffected.

Breville chief executive Jim Clayton told The Australian he expected to lift prices in the US on some products this year. But how many products and when could change depending on how trade negotiations progressed. “Right now the only thing that appears certain is that about 30 per cent of our products will pick up a 10 per cent tariff in September,” he said.

Woodside’s Mr Coleman said the US-China trade war benefited local LNG producers in the short-term by boosting the appeal of Australian exports. But a drawn-out spat would crimp growth and lower demand for commodities “In the long-term I am concerned that a sustained trade war will actually suppress demand. So I worry about that demand growth running out in the long-term and what effect a trade war would have given that about half of that growth is driven by China,” Mr Coleman said.

Outside the corporate sphere, in a speech delivered on Thursday morning, RBA deputy governor Guy Debelle said the ongoing battle between the US and China would slow worldwide growth but Australia’s exposure to China’s centred on its domestic economy, rather than its external sector, providing a degree of insulation, he said.

Nevertheless, in the longer term, the threat to the “rules-based global trading system” was a greater risk to Australia, he said. “The current threats to that are clearly a major risk for the Australian outlook over a longer horizon.”

Perry Williams, Andrew White, Supratim Adhikari, Samantha Bailey also contributed to this article