ASX closes down 0.7% at 2.5-month low on sharp Wall Street drop
Shares closed lower on Monday amid falls in banks, miners and property trusts, while News Corp gained before its investor day.
- Harvey Norman sales boom
- Magellan venture ‘high risk’: Macq
- Mydeal launches IPO bookbuild
- Kendall joins Tabcorp board
That’s all from the Trading Day blog for Monday September 21. The S&P/ASX 200 closed down 0.7pc at a new 2.5-month low as S&P 500 futures fall more than 0.6%.
S&P 500 futures are negative following sharp falls in the US share market on Friday. This is seasonally the worst time of year for Wall Street and there’s downside risk of US political uncertainty, a lack of new policy stimulus and quarter-end rebalancing away from equities after a strong rise versus bonds this quarter.
8.02pm: Yancoal slashes capital spend
Yancoal has slashed its capital spend, as it tightens its belt to ride out a fall in coal prices triggered by the COVID-19 pandemic which helped push the miner into the red.
The Chinese-backed miner cut forecast capex for the current year by more than one fifth to $300m, from $380m in February, saying it was “closely monitoring the state of international coal markets and critical supply chains to assess how the pandemic is likely to impact on our business over the remainder of 2020 and beyond”.
All non-essential capex will be deferred until 2021.
The warning came as Yancoal revealed an interim net loss of $37m, down from a $345m profit in the same period last year.
Revenue from ordinary activities slumped to $1.97bn in the six months to June 30, down from $2.35bn.
Yancoal flagged “uncertain” economic and market conditions would continue, and “supply and demand dynamics resulting from COVID-19 will continue to influence both thermal and metallurgical coal prices significantly”.
Its realised average coal price for the three months through June fell by 25 per cent from the same period last year.
5.47pm: Tabcorp Jumbo offload
Tabcorp Holdings has offloaded its 11.6 per cent stake in ASX-listed lotteries operator Jumbo Interactive. The sale through a block trade agreement with UBS will see Tabcorp gross $98m from the sale at $13.52 a share. The proceeds will be used to pay down existing drawn bank debt facilities. Tabcorp will record a profit after tax on the sale of approximately $69m which is expected to be reported as a significant item as part of the 1H21 result.
Tabcorp’s managing director and CEO, David Attenborough, said: “Following the recent extension of our long-standing commercial distribution relationship with Jumbo for a 10 year term to August 2030, there is no longer a strategic rationale for Tabcorp’s shareholding in Jumbo”.
“As a result, we have decided to monetise this investment, with the resulting capital to be used to further strengthen the balance sheet and support the move towards our recently revised target gearing range”.
Tabcorp last traded at $3.38, down 1c, while Jump closed down 57c at $14.40.
5.27pm: HSBC shares plunge to 25-year low
Shares in banking giant HSBC plunged to a 25-year low Monday on fears it could be added to a Chinese list of firms deemed a threat to national security and following news it had been accused of allowing fraudulent activity to go unpunished.
The troubled lender tanked more than four percent to HK$29.60 at one point -- a level not seen since mid-1995 - as investors fret over its ability to continue doing business in China and Hong Kong, which make up a crucial portion of its growth.
The sell-off came after the Global Times, a state-run English tabloid in China, reported the bank could be one of the first firms to be named on Beijing’s “unreliable entity list” as part of a tit-for-tat stand-off with several western countries.
The report pointed to HSBC’s participation in Washington’s investigation of Huawei and the arrest of its chief financial officer Meng Wanzhou in Canada.
Among penalties that can be meted out include restrictions on trade, investment and visas.
“If the company is listed as an unreliable company by China, which looks certain since it’s a Global Times article, the bank will be facing lots of difficulties to do business in China,” Banny Lam, at CEB International Investment Corp., told Bloomberg News.
“They may have trouble expanding the mainland business, after investing so much there over the past few years.” On Sunday, HSBC was among a group of banks said to have allowed fraudsters to transfer millions of dollars around the world even after it had learned of the scam.
The International Consortium of Investigative Journalists cited leaked official US documents that said the bank “kept profiting from powerful and dangerous players” in the past two decades.
HSBC told the investigation team that it has always met its legal duties on reporting suspicious activities.
Shares in another Hong Kong-listed bank, Standard Chartered, also tumbled almost four percent after it was mentioned in the report.
HSBC has seen its share price more than halve so far this year, hit by the pandemic -- net profit slumped 69 per cent in the first six months -- and China-US tensions.
The lender acts as a major business conduit between China and the West but that has left it more vulnerable than most to the crossfire of the increasingly bellicose relationship between the superpowers.
The bank has tried to stay in Beijing’s good graces, vocally backing Hong Kong’s national security law, sparking criticism in Washington and London.
Analysts saw it as an attempt to protect its access to China, which has a track record of punishing businesses that do not toe Beijing’s line. But that has not shielded it from Beijing’s wrath.
“Current tensions between China and the US inevitably create challenging situations for an organisation with HSBC’s footprint,” HSBC Chief executive Noel Quinn said last month.
“However, the need for a bank capable of bridging the economies of East and West is acute, and we are well placed to fulfil this role,” he added.
AFP
Ben Wilmot 4.42pm: Vellum joins with Urban Property for $1bn build-to-rent fund
The funds management unit of Vellum Group has teamed with developer Urban Property Group to launch The Places Build to Rent Fund that will focus on the fast-growing property class.
Build-to-rent vehicles have been set up by the likes of Mirvac and Grocon, as well as offshore players Greystar and Sentinel, and have snapped up sites for a wave of new complexes.
The first stage for Places BTRF is a $132m capital raising with $66m already committed, and it is now open to investors to participate in the remaining subscription. The fund will have subsequent opportunities for investment and with further stages the fund is expected to reach $1bn in the next five years.
The fund is being pitched as giving institutional investors access to an Australian asset class that is set to grow significantly in the coming years, particularly in NSW where the state government halved land tax for such developments.
Places BTRF is targeting a minimum 5 per cent gross return for its investors. Focused on Sydney developments it is hoping to draw superannuation funds to back the new style of property developments.
The fund’s proof-of-concept is the Highland apartment building in Penrith in Sydney’s western suburbs. Completed in 2019, the purpose built for rent facility has been fully tenanted since early 2019 and has amenities like a concierge service and assisted living spaces for NDIS recipients.
The Places BTRF will acquire and develop property in various areas of Sydney suitable for build-to-rent apartments. In addition to Highland, the investment management team have established a strong pipeline of projects, including a project in Sydney’s Little Bay and they are keen to explore future opportunities working with local and state governments.
4.23pm: ASX closes at 2.5-month low
The S&P/ASX 200 ended the session on Monday at a 2.5-month closing low at 5822.6, down 0.7 per cent for the day, or 42 points, having made a 2.5-month intraday low 5808.20.
The broader All Ordinaries index had fallen 44.1 points, or 0.73 per cent, to 6013.5 points.
ThinkMarkets market analyst Carl Capolingua said the price action on the local market was, “quite concerning”.
“We‘ve taken out a key support level at 5836 today,” he said.
“The next level isn’t until we get to 5700, and then around 5560 from there.
“So, if we can‘t reclaim the support level quickly, one would think that days like today are going to be the norm for a while.”
BHP stepped back 1.2 per cent to $37.35, while Rio Tinto lost 1.2 per cent to $99.40. Fortescue fell 1.2 per cent to $16.20.
In financials, Westpac slumped 1.4 per cent to $16.40, while NAB backtracked 1.4 per cent to $17.04. ANZ retreated 1.3 per cent to $16.85 while Commonwealth Bank slid 1.4 per cent to $63.50.
The Australian dollar was 0.36 per cent stronger against the US dollar trading around US73.15c by the close of the ASX session.
3.57pm: Gerry Harvey hits border closures
Harvey Norman chairman Gerry Harvey foreshadows that state governments will be in for strident criticism through the ongoing border closures when there are virtually no COVID-19 cases.
“You might get away with it for a while, (but) the public will rebel,” he said adding that the state border closures decisions are entirely political.
Mr Harvey said political polling was showing the public is on the side of border closures at present because of health fears. But when the polling reveals the public wants the borders opened that will happen.
“As long as a bigger percentage of the public accept that they will keep doing it,” Mr Harvey said, adding Prime Minister Scott Morrison knows it’s political, that is why he “goes off his brain about it.”
His comments follow Harvey Norman earlier reporting sales surging 30 per cent for the eleven weeks to mid-September.
3.34pm: ASX sinking in final hour
The “hour of power” is going badly for Australian shares as the index cements a solid 3-day losing streak.
The S&P/ASX 200 is currently down 0.9pc at a new 2.5-month low of 5810.6 as S&P 500 futures fall more than 0.6%.
Major banks, miners and property trusts are still doing most of the damage.
Among them, CBA is down 1.3pc, BHP is down 1.1pc and Scentre is down 3.7pc.
S&P/ASX 200 last down 0.8pc at 5817.8.
3.22pm: Hang Seng losing ground
Hong Kong stocks finished the morning session in negative territory Monday as traders fret over a spike in virus infections and a lack of movement in US stimulus talks.
The Hang Seng Index fell 0.95pc, or 232.32 points, to 24,223.09.
AFP
3.10pm: AUD/USD ‘likely to consolidate’: CBA
CBA’s Global Markets Research team says AUD/USD is likely to consolidate this week, with little domestic economic data expected.
“RBA deputy governor Guy Debelle’s speech will be the local highlight tomorrow. AUD may increase if Debelle signals that imminent monetary policy changes are unlikely,” the team said in a note.
Patrick Commins 2.35pm: CBA sees jump in card spending
Australians are shopping their way out of the sharpest economic downturn since the 1930s.
The country’s biggest retail bank said a surprisingly strong lift in spending by its millions of card customers over recent weeks suggests the economy will buck pessimistic Treasury forecasts and expand strongly through the September quarter.
Amid fears the COVID-19 recession would stretch to three straight quarters for the first time since the 1980s, Commonwealth Bank head of Australian economics Gareth Aird said he now expects real GDP will grow by 2 per cent, versus an earlier forecast that the economy would stall.
While growth in the order of 2 per cent is not the economic “snapback” Scott Morrison had hoped for when the country was riding high in June on an earlier than expected national reopening, it would still be the fastest quarterly expansion since 1995, when the economy grew by 2.3 per cent on a seasonally adjusted basis.
Mr Aird said he “had expected to see a modest rebound in household consumption over (the third quarter) as a lift in expenditure outside of Victoria was partially offset by the lockdown-induced contraction in spending in Victoria”.
“But what has surprised us is the strength of spending outside of Victoria.”
Weekly spending on CBA cards since June has been “materially” above the second quarter, Mr Aird said, averaging year-on-year growth in the order of 6.5 per cent versus around -3.5 per cent. Spending on the likes of homewares has stayed strong, while other areas such as entertainment have shown solid growth, even as they remained down on a year earlier. By state, Queensland and Western Australia had led the growth in card spending, Mr Aird said.
2.21pm: CBA revises GDP growth forecasts
CBA’s Global Markets Research team upwardly revised its profile for Australian GDP growth, based largely on a significant upgrade to Q3 20.
“GDP is now forecast to rise by 2.0% in Q3 20 GDP compared to our previous estimate centred on a broadly flat outcome,” the team said in a note.
“GDP in 2020 is forecast to contract by 3.3% versus our previous estimate of ‑4.3%. We now expect GDP growth of 2.5% in 2021 and for the unemployment rate to be 6.5% by end 2021.”
2.15pm: Westpac appoints new consumer division head
Westpac has appointed Deem CEO Chris de Bruin chief executive of its consumer division.
Mr de Bruinis currently the chief executive of Deem in Dubai, one of the largest non-bank financial institutions in the Middle East. He previously worked in a number of senior roles at Standard Chartered Bank.
“Chris has extensive experience in consumer banking, including leading the global retail distribution and product portfolios, as well as several regional consumer businesses, of a multinational bank,” Westpac chief executive Peter King said.
“He also has a strong background in fintech and digital banking, which will be particularly valuable as we work to enhance our digital capability and better meet customers’ changing needs.”
Mr de Bruin will commence in the role in early 2021, subject to regulatory approvals.
2.10pm: Aussies milk savings during pandemic
While Australians have, to some extent, been negatively affected by the COVID-19 (coronavirus) pandemic, some are faring better than others when it comes to their financial security. Working from home arrangements and fewer opportunities to spend discretionary income are arguably enabling Australians to bolster their savings at a faster rate than ever before, says MyState Bank.
On the other hand, many Australians are also facing financial stress, with half of the population reporting that they would not be able to afford a $200 increase in monthly household expenses in the latest research from bank.
The survey of more than 1000 Australians commissioned by MyState Bank found that almost four in 10 (38%) Australians did not have an emergency fund before the outbreak of the coronavirus pandemic. Meanwhile, a third of Australians (33%) have been forced to dip into their savings to get by since the outbreak of coronavirus.
Of those who admitted to drawing on their life savings during this time, one in 10 estimated they had drained more than half of their savings.
MyState Bank general manager, customer experience, Heather McGovern said that despite financial hardship assistance on the table from the government and banks, many Australians were still struggling to manage their finances.
“What started out as a health crisis has been felt in the hip pockets of many Australians across the country. While lockdown measures have helped some Australians into a better financial position; for others, it has left gaping holes in their household income.”
Almost one-fifth (18%) of those surveyed reported that the economic implications of COVID-19 have seen their household income decrease by more than a quarter.
1.50pm: ASX extends fall to 0.8pc
The S&P/ASX 200 extended its intraday fall to a 2.5-month low 5816.7.
At that point it was down 0.8pc although it’s now down about 0.5pc after bouncing to 5835.
It came as S&P 500 futures tipped back into negative territory following sharp falls in the US share market on Friday. This is seasonally the worst time of year for Wall Street and there’s downside risk of US political uncertainty, a lack of new policy stimulus and quarter-end rebalancing away from equities after a strong rise versus bonds this quarter.
Lilly Vitorovich 1.21pm: News Corp lifts ahead of investor day
News Corp is outperforming the media sector on the ASX, up 5.2 per cent at $21.43 ahead of the media group’s keenly anticipated Dow Jones investor day.
At the virtual event, News Corp chief executive Robert Thomson will be joined by Dow Jones CEO Almar Latour and other Dow Jones executives.
News Corp, publisher of The Australian, announced the Dow Jones investor day last month together with the media group’s fiscal fourth-quarter and 2020 financial results. It also broke out Dow Jones earnings for the first time.
Dow Jones posted a 3 per cent rise in annual revenue to $US1.6bn ($2.19bn), with underlying earnings up 13 per cent to $US236m.
Mr Thomson said that Dow Jones, the division that owns The Wall Street Journal, had performed strongly in comparison to its rival The New York Times.
News Corp will hold two 90 minute sessions for investors via webcast, with the first one to kick-off 10am New York time, or midnight Sydney time.
Bridget Carter 1.21pm: Gonski for Barrenjoey chair?
DataRoom | Outgoing ANZ chairman David Gonski is believed to be in line to take the position of independent chairman at the newly formed investment bank Barrenjoey Capital Partners.
It comes as the listed Magellan Financial Group announced today that it is backing the new venture that will count former UBS investment banker Guy Fowler as its executive chairman and former Challenger boss Brian Benari as its chief executive.
The new venture counts a long list of high-profile names in the business world as among its key participants, with the former Deutsche Bank Australia deputy chief executive John Cincotta as a founding partner, along with listed company director Matt Hanning and former UBS operative Chris Williams.
Mr Gonski declined to comment on the speculation.
1.16pm: Cola king dies
Donald M. Kendall, who built PepsiCo Inc. into a snack-and-beverage juggernaut and introduced the Soviet Union to American cola at the height of the Cold War, died Saturday. He was 99 years old.
The executive, who grew up milking cows and finished just three semesters of college, became chief executive of Pepsi-Cola Co. in 1963 at age 42 and presided over the company until his retirement in 1986. During that time, sales grew nearly 40-fold through acquisitions and the “Pepsi Challenge” – its high-profile marketing assault on the dominance of rival Coca-Cola Co.
“He was relentless about growing our business, a fearless leader, and the ultimate salesman,” said PepsiCo CEO and chairman Ramon Laguarta. “In many ways, he was the man who made PepsiCo PepsiCo.” Shortly after Mr. Kendall became CEO, the company launched its “Pepsi Generation” campaign that cast Pepsi as the hip, upstart cola for young people and Coke as staid and old-fashioned. PepsiCo put its flagship brand name on Diet Pepsi, which catapulted diet soda into the big time, as a more cautious Coke stuck with its diet offering, Tab. And under Mr. Kendall, the company conducted its “Pepsi Challenge” taste tests pitting Pepsi directly against Coke.
Mr. Kendall famously said both companies benefited from the “cola wars, ” a rivalry that continues to this day. “They brought out the best in us,” he said. “If there wasn’t a Coca-Cola, we would have had to invent one, and they would have had to invent Pepsi.” In 1965, Mr. Kendall agreed to another bold move – merging New York-based Pepsi-Cola Co. with Dallas-based potato-chip giant Frito-Lay Co.
Dow Jones
John Durie 1.03pm: MacKenzie flirts with conflict
BHP chair Ken MacKenzie is in danger of clear conflicts of interest in taking on the role as “senior strategy partner” at the new investment bank Barrenjoey Capital.
The Magellan and Barclays-backed firm said in a statement MacKenzie would be available “to provide strategic advice and senior counsel to CEOs, chair persons, boards, executive teams and business owners in developing and executing their long strategies”.
No mention of his day job today which is as chair of BHP.
Also left unsaid is who will be the new bank’s chair but everyone guesses this will be former UBS boss Matthew Grounds.
He is sitting on the sidelines awaiting the next tranche of his stipend from UBS, due next March, but also leaving plenty of clean air before stepping back into the market.
MacKenzie it should be noted has no plans to step down from the BHP chair and rejects the concept that he could be in conflict.
In an interview with The Australian he said the BHP board considered the move and with the right protocols saw no problem.
He stressed BHP was his top priority. He is an adviser to Barrenjoey with no statutory position and is merely advising the firm and its clients. MacKenzie said he would not advise on transactions and would not be involved if there was any conflict.
“BHP is my number one priority,” he says.
Lachlan Moffet Gray 12.13pm: Analysts cautious on shopping mall raisings
Shopping mall giants Scentre and Unibail-Rodamco-Westfield‘s raisings are being cautiously watched by analysts, who are giving as much weight to future indications of shopping mall performance as they are current company indicators.
In a note, analysts from UBS said that Scentre‘s hybrid issuance of US$3bn ($4.1bn) reduces financial risk for the company as the 5 per cent coupon rate has been used to retire bank debt and short-term bonds of US$500m.
The analysts said that the “true leverage” for investors would be a gearing level of around 40 per cent once capital that ranks ahead is taken into account, but given hybrid notes are not included as liabilities for banks and bond covenants, there is still ”substantial” room from a covenant perspective, ensuring continued access to debt capital markets.
However, while a forced de-leveraging scenario is no longer a glaring issue for Scentre, the analysts say that long-term threats to income remain as retail tenants reassess their store footprints.
The analysts believe top tier assets will largely perform well, with the threat of reduced income coming from the lower end of Scentre‘s pool of 30 shopping centres.
Analysts from Macquarie are less confident in Unibail-Rodamco-Westfield‘s €9bn ($14.61bn) “reset plan” comprising of a €3.5bn capital raise, €1bn in retained earnings over the next two years, €4bn of disposals and €0.8bn in capex reduction.
12.06pm: Phoslock investigates ‘accounting irregularities’
Water treatment technology developer Phoslock Environmental has been suspended from trade, pending the results of an audit into “accounting irregularities” in its Chinese operations.
The listed group, which specialises in engineering solutions to remediate polluted waterways, said today its chairman and managing director had drafted in KPMG’s forensic accounting division to investigate suspected accounting irregularities discovered during the audit process for the half year ended June 30,2020. ”The company will seek to leave the current voluntary suspension of trading in place until the investigation and resulting KPMG report is completed and the impact of any irregularities is quantified,” it said.
PET shares last traded at 24.5c.
12.00pm: ASX down 0.5% as banks, miners fall
Australia’s S&P/ASX 200 drifted down 0.6pc to a 2.5-month low of 5830.3 in quiet trading after sharp falls on Wall Street on Friday night.
Share trading volume was 40pc below average but all sectors were in the red apart from Health Care, Energy and Consumer Staples.
The sell-off gathered pace just before midday although US futures were flat after an early fall.
Banks, miners and property trusts did most of the damage with CBA down 0.8pc, BHP down 1pc and Unibail down 7pc after Macquarie slashed its price target.
Partly offsetting those falls was a 1.1pc rise in CSL, a 3.7pc gain in Sonic Health care and a 0.5pc rise in Woolworths. Harvey Norman rose 2.3pc after reporting a 30.6pc rise in sales for 1 July-17 September. News that Oracle will take a 12.5pc stake in TikTok Global was in focus for global markets.
Lilly Vitorovich 11.42am: Village loses Warner Bros. distribution deal
Entertainment company Village Roadshow’s film distribution deal with Warner Bros. will cease at the end of the year after the US entertainment heavyweight decided against renewing its contract.
The group, which is being taken over by private equity group BGH Capital in a deal worth up to $487.5m, said its deal to distribute Warner’s films in Australia and New Zealand through its subsidiary Roadshow Films won’t be renewed when it expires on December 31.
Village’s cinemas are currently showing Warner’s blockbuster but many other major releases have been pushed back until December or next year because of the coronavirus crisis.
Warner is yet to make a decision about the “potential expiry or extension of Roadshow’s contract” to distribute its products via home entertainment, which also expires at the end of Dece
11.25am: Signs of ‘investment mania’: Platinum chief
Platinum chief executive Andrew Clifford says there are all the signs of “a fully-fledged investment mania” as he makes a warning about so-called cashbox investment funds.
Writing in Platinum’s annual report Clifford notes retail investors have enthusiastically embraced the bull market, many with stories of great fortunes made from investing little money.
“The market has become highly thematic with labels such as “COVIDwinners” explaining their stock price performance better than any hard-edged assessment of business positioning, intellectual property and future earnings. Innovative financing vehicles are often a sign of investor exuberance and today, we have SPACs (special purpose acquisition companies), where investors are handing money over on the basis that an exciting private business will be acquired at some point in the future”.
However Clifford warns that anyone who has been around long enough will remember the “cashbox” initial public offerings (IPOs) of the late 1980s and what happened to investors in those vehicles.
“As high growth stocks have become progressively more expensive, we have elected to reduce our positions in such investments, having made good returns. However, underlying our decision was not only the extended valuation of the growth stocks, but also the extraordinary opportunities available elsewhere”.
“Additionally, our global strategies have remained cautiously positioned in response to what has become an increasingly speculative environment,” Clifford says.
11.15am: Super payouts reach $33.3 billion
Super funds have now paid out $33.3 billion to members as part of the government’s COVID-19 Superannuation Early Release Scheme.
According to the latest data released by APRA, $340 million was paid out to 46,000 members in the week through September 13.
11.10am: Magellan venture ‘high risk’: Macquarie
Macquarie’s Brendan Carrig says the new Barrenjoey Capital Partners venture, in which Magellan Financial has become a cornerstone investor, carries a “high degree of risk and uncertainty in a highly competitive business”.
“For a foundation business that will likely incur significant upfront costs in order to achieve scale this investment clearly comes with a high degree of risk and uncertainty,” he says.
“Should Barrenjoey not gain the required level of traction across the Australian client base within 18-24 months, success without further investment will likely be hard to come by.”
11.00am: Buy value & vaccine beneficiaries: MQG
Macquarie Equities has boosted exposure to value and vaccine beneficiaries in its model equities portfolio.
“Leading indicators already signal a shift to economic expansion and when this occurs after a US recession, Australian value stocks outperform,” says Australian equity strategist Matt Brooks.
But he still favours Resources and has reduced exposure to offshore industrial companies, noting that the economic expansion phase is often positive for commodities and the Australian dollar.
“If you do not rotate money to value now, you never will,” Mr Brooks says.
He notes that buying value here is consistent with past cycles that show Australian value outperformed in the first expansion year after a recession, and also gives investors more exposure to vaccine beneficiaries that should benefit from higher activity as the economy continues to reopen and return to normal.
And it’s consistent with increasing exposure to cyclical stocks that should benefit more from higher nominal GDP growth driven by fiscal stimulus and monetary easing, as well as increasing exposure to domestic industrials over offshore earners at a time when we he expects rising commodity prices to lift the Australian Dollar.
Mr Brooks also argues that switching from growth to value will also help guard against a potential de-rate of growth-style industrial companies if the recovery is faster than expected, driving higher expectations for inflation and rates.
In his view it’s a strategy that has more chance of making money since it’s contrary to the consensus view.
“Markets seem increasingly willing to chase growth at any price due to low interest rates and quantitative easing,” he says.
Macquarie has therefore added Ampol, BlueScope, Lendlease, Seven Group and United Malt Group to its model portfolio to boost exposure to value while adding stocks negatively impacted by COVID-19.
It has also added ANZ and WBC in place of CBA to boost exposure to value, while removing Amcor, Medibank and Wesfarmers from the portfolio, in part because they saw some benefit from COVID-19.
Transurban was removed to make room for value names since it’s now close to fair value.
News Corp – viewed as an indirect play on REA, which is a growth stock – was also removed.
Macquarie also increased model portfolio weights to value names negatively impacted by COVID-19, including Crown, Worley, Sydney Airport and GPT Group while reducing some USD earners including CSL, James Hardie and Aristocrat.
Half of its best analyst ideas – BlueScope, Fortescue, Lendlease, Ramsay Health Care, United Malt Group and Worley – are in the model portfolio.
10.50am: OceanaGold withdraws guidance
Shares in OceanaGold have dropped in early trade after the gold miner withdrew its production guidance.
The company said that it was told by the ASX that based on the percentage of inferred resources used in its preliminary economic assessment of its Waihi operations, it may not have had reasonable basis for the production and economic forecasts it disclosed to the market in July.
“Following discussions with the ASX, the company advises that it retracts the announcement,” OceanaGold said in a statement to the market.
“Investors are advised to exercise caution with respect to, and should not make any investment decision based on, the production targets and economic forecasts included in the announcement.”
OceanaGold shares last down 5.2pc at $2.73.
Bridget Carter 10.21am: Reece raising equity
DataRoom | Recce Pharmaceuticals is launching an equity raising Monday at $1.30 per share to secure $28m. Working on the raise is Shaw and Partners.
The company currently has a market value of $238.8m and its shares last closed at $1.635.
Funds are being used for clinical trials in relation to Reece’s anti-infection and antibacterial polymer compounds.
10.20am: ASX flat; banks, miners down
Australia’s S&P/ASX 200 share index was flat after falling 0.2pc to 5849.7 after US falls.
Property trusts were the biggest drag with Dexus down 3.6pc after Morgan Stanley cut its rating to Underweight and Unibail-Rodamco-Westfield down 7pc after Macquarie slashed its target price. Banks are also down for a second day running with NAB down 0.8 per cent and the major miners are struggling with BHP down 0.4 per cent.
But the falls are being offset by gains in the Health Care, Consumer Staples and Consumer Discretionary sectors. Within them, CSL is up 1.6 per cent, Sonic Health Care is up 2.3 per cent, Woolworths is up 0.6 per cent, Wesfarmers is up 0.5 per cent and Harvey Norman is up 4.6 per cent.
10.15am: Rex shares halted
Air carrier, Regional Express Holdings places its shares in an immediate trading halt “pending the ASX announcement in relation to funding for starting up domestic operations”.
Rex says the trading halt will last until Wednesday release of the announcement as mentioned above.
10.00am: What’s impressing analysts?
- Virgin Money cut to Hold: Bell Potter
- Ampol, BlueScope, Lendlease, Seven, United Malt Group, ANZ, Westpac added to model portfolio: Macquarie
- CBA, Amcor, Medibank, Wesfarmers removed from model portfolio: Macquarie
- CSL cut to Sell: Morningstar
- Dexus cut to Underweight: MS
- Unibail price target cut 28pc to $2.96: Macquarie
Bridget Carter 9.58am: Mydeal launches IPO bookbuild
DataRoom | Mydeal has launched its bookbuild Monday for its initial public offering ahead of its listing next month.
The company has priced its initial public offering at $1 per share in a move that will see it float as a business worth $258.8m. Mydeal is looking to raise $40m.
On an enterprise value basis, the company will be worth $221m.
The online business will lodge its prospectus on September 23 and start trading on a normal settlement basis on October 22.
Shareholders selling out of the company will receive $5m.
Founded in 2011, Mydeal.com.au is an Australian e-commerce group that sells household goods such as furniture and homewares.
It operates as an intermediary, facilitating transactions between consumers and sellers.
It has over 800 active sellers and more than 5 million products across 2000 categories.
There were more than 1 million products sold in the 2020 financial year on the platform.
The company has established a private label offering and intends to use its marketplace to help grow this offering while driving earnings higher for the MyDeal business.
Mydeal revived its plans for a float in July through Morgans and RBC Capital Markets, as first flagged by DataRoom.
The company, which is capitalising on the amount of shopping through the internet amid the COVID-19 pandemic, was founded by Sean Senvirtne and is recently said to have moved into profit making territory.
It has been compared to other strongly performing online market places such as Kogan or Temple and Webster.
This year, the business, which counts the Gandel family as among its supporters, was on track to generate about $60m in annual revenue.
9.48am: Harvey Norman sales boom
Retailer Harvey Norman has experienced a COVID sales boom, with total sales revenue from Harvey Norman wholly-owned company-operated stores in New Zealand, Slovenia, Croatia, Ireland and Northern Ireland increased by 30.6 per cent for the period 1 July 2020 to 17 September 2020 when compared to the same time last year.
The comments are expected to boost other household goods retailers with companies from JB Hi-Fi to online retailer Temple & Webster.
The lift was led by Australian operations (sales up 33.8 per cent), NZ up 18.8 per cent. Slovenia and Croatia were up by 27.2 per cent and Ireland up 61.7 per cent. Even so Harvey Norman noted 18 of its franchises across Melbourne were closed to the public from August 6 as a direct result of the stage four restrictions.
While the franchisees introduced Click & Collect and contactless deliveries, the sales turnover of impacted affected franchisees in greater Melbourne “have been adversely affected by these mandated closures,” Harvey Norman said.
Harvey Norman expects the easing of Stage four Restrictions in Victoria will commence from October 26.
Harvey Norman last traded at $4.35, just off a six month high of $4.45.
9.45am: ASX may hit 2.5-month low
Australia’s share market may hit a 2.5-month low after the US share market hit 6-week lows.
Futures relative to fair value suggest the S&P/ASX 200 index will open down 0.4pc at 5848.1 after the S&P 500 fell 1.1pc to 3319.47 and the Nasdaq lost 1.1pc to 10793.28.
S&P 500 futures are up 0.1pc after dipping 0.6pc in early Asian trading.
Concern about the US market could see the S&P/ASX 200 break the level 5836.2 which has held since 30 June. Despite valuation support from low interest rates, the short-term technical, seasonal and fundamental background for the US share market is now quite bearish.
Apart from Friday’s US share market closes at new six-week lows, this is the worst time of year for US stocks and macroeconomic policy is disappointing just as coronavirus resurges amid a lack of vaccines and as US election uncertainty looms.
While improving domestic coronavirus trends may help economic reopening trades, there’s no hint of change to Melbourne’s road map for reopening.
Focus turns to a speech by RBA deputy governor Guy Debelle on The Australian Economy and Monetary Policy – at Australian Industry Group conference on Tuesday.
Global PMI data are due Wednesday.
Bridget Carter 9.42am: Dusk to launch IPO
DataRoom | The Brett Blundy-backed Candle retailer Dusk is set to launch the roadshow for its initial public offering next week, with the group expected to raise $65 million.
The company, which has drafted in Allier Capital as an adviser, generates $21 million of annual earnings before interest, tax, depreciation and amortisation, or $26m including the Job Keeper subsidies from the government.
Dusk has about 100 stores nationally and its market value is expected to be at least $100m.
9.40am: Janette Kendall joins Tabcorp board
Former Crown executive Janette Kendall has been appointed to the board of wagering giant Tabcorp as a non-executive director.
Ms Kendall is currently a Non-Executive Director of Vicinity Centres, Costa Group, Australian VenueCo, KM Property Funds, Visit Victoria and the Melbourne Theatre Company.
She has previously served on the boards of Nine Entertainment and Wellcom Worldwide.
“We welcome Janette Kendall to the Tabcorp Board,” said Tabcorp chairwoman Paula Dwyer.
“Kendall is a highly experienced director who brings deep experience in the gambling entertainment industry, digital innovation, and marketing.
“We look forward to her contribution and complementing the existing skills and experience on the Tabcorp board.”
Ben Wilmot 9.30am: Ascendas acquires Macquarie Exchange building
The lure of suburban office buildings, that have been billed as a big beneficiary of the pandemic driven flight from CBD towers, has drawn another offshore player with Singapore’s Ascendas Reit buying a major property on Sydney’s north shore.
The company has snapped up a forthcoming building in the $750m Macquarie Exchange from partners Frasers Property Industrial and Winten Property Group.
The pair will be development manager on the building and land known as MQX4 under a $167.2m deal. To be developed on a 3,308sq m freehold site, MQX4, a nine-storey building, will comprise 17,753sq m of lettable office space over eight levels, 1,631 sqm of ground floor retail space and 204 car spaces.
MQX4 sold on a 6.1 per cent yield and is one of four new buildings that will make up Macquarie Exchange, which is being promoted as a “community business district” that will capture the new dynamic of working locally.
All there will be 83,368sq m of space across four buildings, connected by laneways and with a park.
Macquarie Exchange, designed by renowned architects Bates Smart, is expected to generate approximately 600 jobs during construction.
Completion of the land sale to Ascendas Reit is expected to occur in later this year and the building is to be finished by mid-2022.
Frasers and Winten will provide a three-year rental guarantee from completion in the event of vacancy.
9.20am: IAG appoints new CEO
IAG has appointed Nick Hawkins as its incoming chief executive after Peter Harmer announced his retirement in April, after five years in the top job.
“Nick has a deep understanding of both global and domestic general insurance along with operational and financial experience, and this will ensure a smooth transition for IAG,” chairwoman Elizabeth Bryan said.
Mr Hawkins, who joined IAG in 2001, was appointed deputy CEO in April after 12 years as chief financial officer.
He will start in the new role at the beginning of November.
Damon Kitney 9.15am: Magellan takes stake in advisory group
Magellan Financial Group is taking a cornerstone 40 per cent stake in a new investment and advisory group known as Barrenjoey Capital Partners, to be chaired by former UBS banker Guy Fowler and run by former Challenger Financial Group CEO Brian Benari.
Barrenjoey will provide corporate and strategic advisory, equity and debt capital market underwritings, cash equities, research, prime brokerage as well as traditional fixed income services to Australian and international clients. It will also be bankrolled by Barclays, which has become a foundation investor in Barrenjoey.
BHP chairman Ken MacKenzie will also join in early 2021 as Barrenjoey’s Senior Strategy Partner.
Barclays has entered into a Co-operation Agreement with Barrenjoey covering global product distribution, research, cross-border advisory and debt capital markets, as well as making available significant balance sheet capacity for Barrenjoey to support its clients.
7.11am: TikTok could be worth up to $US60bn
TikTok could fetch a valuation of $US60 billion in the deal that its parent company ByteDance is working to complete with Oracle and Walmart that would see the two U.S. companies take significant stakes in the popular video-sharing app, Bloomberg reports. Under the reported terms of the deal, which is being pursued to address U.S. national security worries, Oracle will buy a 12.5% stake in TikTok Global and host all U.S. user data, and Walmart would take at 7.5% stake. Those stakes would, in total, cost $12 billion if ByteDance’s valuation target is met. The final terms of the deal have not yet been completed, Bloomberg noted. President Donald Trump said Saturday that he supported the deal in principle would allow TikTok to continue to operate in the United States, even though it doesn’t seem to fully satisfy the terms of an earlier executive order calling for ByteDance to divest from TikTok.
Meanwhile a US federal judge issued an order Sunday temporarily blocking the Trump administration’s ban of WeChat. The Chinese-owned messaging and e-commerce app was set to be banned in the U.S. at 11:59pm on Sunday night, but U.S. Magistrate Judge Laurel Beeler put a preliminary injunction in place blocking the federal ban on Americans downloading the app. President Trump wanted the app banned because of security concerns over data collected by the app being shared with the Chinese government. The ruling came in a suit filed in August by Tencent Holdings, which owns WeChat, and a non-profit organisation that says it isn’t affiliated with company and represents a group of app users. Judge Beeler said she was persuaded by the free-speech arguments made by the company and user group. “There are no viable substitute platforms or apps for the Chinese-speaking and Chinese-American community,” she wrote in her order. “WeChat is effectively the only means of communication for many in the community, not only because China bans other apps, but also because Chinese speakers with limited English proficiency have no options other than WeChat.
Dow Jones
7.05am: US recovery slowing?
US data out this week is likely to underscore an emerging theme of the coronavirus recovery: The economy is getting better, but the pace of improvement is slowing and the longer-term outlook remains uncertain.
The US housing market has been a bright spot this summer, with July existing-home sales surging to the highest level since the waning days of the housing bubble in 2006. Figures for August are expected to show another gain – though smaller than June or July’s – as Americans take advantage of low mortgage rates while continuing to seek out more living space.
On Wednesday, surveys of purchasing managers in the US, Europe and Japan are expected to show that the pace of the economic recovery steadied in September, after strong rebounds in previous months.
Meanwhile US weekly jobless claims have remained elevated in recent weeks, showing that lay-offs remain historically high and suggesting the labour market is losing some momentum as the summer winds down. Figures for the week ended Sept. 19 are expected to tick down slightly from a week earlier.
Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin appear before the Senate Banking Committee to present a quarterly report to Congress on the Cares Act. The White House favours another round of stimulus spending and Mr. Powell has urged lawmakers to pump more fiscal aid into the economy, but Democrats and Republicans have been at loggerheads on the size and scope of any new relief bill.
US manufacturers have staged a partial rebound from shutdowns and supply-chain disruptions related to the pandemic. That is expected to continue in August data due on Friday, with new orders for durable goods – products designed to last at least three years – likely posting their fourth consecutive monthly gain. But economists are forecasting a slowdown in the pace of improvement in overall demand and underlying business investment amid uncertainty about the path of COVID-19.
Dow Jones
6.52am: Trade headlines Trump-Suga talks
US President Donald Trump on Sunday spoke to Japan’s new prime minister, Yoshihide Suga, to congratulate him on taking office and to discuss a “free and open Indo-Pacific” region, which is increasingly dominated by China.
“The two leaders discussed the importance of pursuing our shared vision of a free and open Indo-Pacific, continuing to strengthen the United States-Japan Alliance, and working together to strengthen the global economy,” the White House said in a statement.
China is locked in disputes with neighbours including Japan and Vietnam over islands in the South China Sea.
AFP
6.50am: Iran decries new US sanctions
Iran on Sunday called on the rest of the world to unite against US “reckless actions”, after Washington unilaterally declared UN sanctions against the Islamic republic were back in force.
“We expect the international community and all the countries in the world to stand against these reckless actions by the regime in the White House and speak in one voice,” foreign ministry spokesman Saeed Khatibzadeh told a news conference in Tehran.
AFP
6.47am: Secretive Thiel-backed tech group set for IPO
Perhaps the most secretive firm to emerge from Silicon Valley, Palantir Technologies is set for a stock market debut this month that may shed light on the Big Data firm specialising in law enforcement and national security.
Created after the September 11, 2001 terror attacks with initial funding from a CIA venture-capital unit, Palantir and its predictive analytics platform reportedly have helped the US military locate Osama bin Laden and track weapons movements in the Middle East.
Its platform has also been used in the controversial practice of “predictive policing” to help law enforcement, detect medical insurance fraud and fight the coronavirus pandemic.
While Palantir’s data practices and algorithms are secret, the company claims it follows a road map which is, if anything, more ethical than its tech sector rivals.
It moved its headquarters to Denver this year, partly in an effort to set itself apart from its Silicon Valley rivals.
“Our company was founded in Silicon Valley. But we seem to share fewer and fewer of the technology sector’s values and commitments,” Palantir says in its prospectus.
“From the start, we have repeatedly turned down opportunities to sell, collect or mine data.”
Palantir, whose name comes from the mystical, all-powerful seeing stone in “Lord of the Rings,” is opting for a direct listing, expected on September 29. This will not raise capital but will allow shares to be traded on the New York Stock Exchange.
Palantir’s filing suggests a valuation of some $10 billion, down from a private value as high as $25 billion, according to Renaissance Capital.
The company posted a loss of $580 million last year on revenue of $743 million. But it sees prospects improving as it offers solutions to what it calls “fractured healthcare systems, erosions of data privacy, strained criminal justice systems and outmoded ways of fighting wars,” its regulatory filing says.
Palantir’s biggest shareholder is Peter Thiel, an early Facebook investor and one of the rare tech executives who backed Donald Trump’s campaign in 2016.
“We are in a deadly race between politics and technology,” Thiel wrote in a 2009 essay for the libertarian Cato Institute.
“The fate of our world may depend on the effort of a single person who builds or propagates the machinery of freedom that makes the world safe for capitalism.”
6.43am: US inflation warning
A US central banker said Friday the Federal Reserve has been too cautious in its recent policy shift allowing higher prices to boost employment, and warned against heeding “ghost stories” about inflation.
Neel Kashkari, president of the Fed’s Minneapolis branch, dissented from the vote Wednesday, pledging to allow inflation to rise above 2 per cent “for some time” to achieve the central bank’s goal of maximum employment.
The statement reflects the policy shift first announced by Fed Chair Jerome Powell in August, but Kashkari said the Fed should have made a “stronger commitment to not raising rates until we were certain to have achieved” the full employment objective.
He stressed that economists and central bankers have long been proven wrong in their concerns about the threat of low joblessness sparking higher prices. And if the new policy had been in place in 2012, the Fed would have delayed increasing the benchmark lending rate by at least a year, he said.
During the recovery from the global financial crisis over the past decade, US inflation rarely hit 2 per cent and then only briefly as unemployment continued to fall, reaching a historically low 3.5 per cent prior to the COVID-19 pandemic.
While central banks generally worry about uncontrolled price increases, low inflation is worrisome as well since it can cause a downward cycle that is hard to counteract.
Many central bankers believed that “once inflation started climbing, it might accelerate, requiring a very strong policy response to control it,” Kashkari said, calling such theories “ghost stories, because there was no evidence they were true but they also couldn’t be ruled out.” The Fed has tools to address rising inflation, but little in its arsenal to counteract the current cycle of low inflation, he said.
“Persistent low inflation is posing challenges to advanced economies around the world,” and if the new policy helps to generate higher inflation that led to a rate hike “I think we would consider that a high-class problem,” Kashkari said.
Kashkari was one of two members of the Fed’s policy committee to dissent from the vote Wednesday. The other, Dallas Federal Reserve Bank President Robert Kaplan, has not issued a statement explaining his decision, but indicated he wanted greater “flexibility” in the policy
AFP
6.35am: Weaker tech likely to drag ASX lower
The Australian sharemarket is tipped for a weak start Monday morning following negative overseas leads as concerns grow about the pace of the global economic recovery from COVID-19.
The local sharemarket is expected to open about 36 points, or 0.6 per cent, lower, with analysts counting on the materials sector to provide a degree of support to help cushion the decline.
“The European and US markets were down broadly around about 1 per cent (on Friday). And our market is only expected to be down 0.6 per cent, so we might hold up a little bit better, given the fact that the gold, iron ore and base metal prices were higher,” CommSec chief economist Craig James told The Australian.
Spot gold was trading near $US1950 an ounce at the US close and rose 0.7 per cent over the week. Iron ore, meanwhile, gained 2.6 per cent to $US125.20 a tonne on Friday, but was down 3 per cent over the week.
Low coronavirus numbers in both Victoria and NSW would also provide some encouragement to market watchers, Mr James said. Victoria recorded 14 new cases on Sunday, bringing its 14-day rolling average down to 36.2, while NSW recorded just two new cases.
“In terms of major themes it’s still very much focused on the technology sector in the US, and there’s also a bit of merger and acquisition activity happening in Europe … keeping things reasonably interesting there,” he added.
ASX rises; fourth quarter CPI rises 2.4pc
Underlying inflation hits lowest number since early 2021. Rate cut expectations brought forward. Aussie shares a sea of green after US rebound. Sigma in trading halt pending shareholder meetings over Chemist Warehouse merger.
Chinese AI start-up’s trillion dollar hit of tech’s ‘Magnificent Seven’
The arrival of cut-price Chinese rival to ChatGPT has seen more than a trillion dollars wiped from the value of major tech companies.