Aussie titans sell down, blue chip stocks rollercoaster as bitcoin continues to shine

Rupert Murdoch Frank Lowy blue chip Australian stocks sell down bitcoin
WEEKLY MARKET REPORT

Two of the absolute giants of the Australian share market – Sir Frank Lowy and Rupert Murdoch – this week decided to sell down huge chunks of their business empires.

For Sir Frank, 87, it marked the end of an almost 57 years of forging the international shopping centre group Westfield before selling to Europe’s largest commercial property group Unibail-Rodamco in a $32.8 billion deal.

Never one to be upstaged, Rupert Murdoch, 86, sold the vast bulk of his 21st Century Fox film and cable TV assets to Disney for $68 billion.

Both are incredibly wily operators and it is not hard to see some method in the cashing out and slimming down of their empires.

In Sir Frank’s case, the world’s shopping malls continue to face disruption from big online retailers while for Rupert Murdoch the challenges of keeping up with digital disruptors in the media space are even greater.

While neither mogul is getting any younger, it will be interesting to see what moves they make next as the deals progress and the cash rolls in.

Values slide for Commonwealth, Myer and Retail Food Group as bad news dominates

It was not such happy news for some of the other large companies on the ASX with shares in Commonwealth Bank and Myer on the slide.

For Commonwealth it was continuing revelations about its money laundering and counter-terrorism law breaches which now appear to be spreading as the government financial intelligence unit AUSTRAC announced it intends to make further allegations.

Commonwealth’s premium valuation compared to the remaining three banking majors has been eroding as the scandal continues to fester and potential fines stack up.

Myer shares also slumped to record lows as Christmas shoppers appeared to be shopping in places other than the big department store chain, which is also battling harsh criticism from large shareholder Solomon Lew’s Premier Investments.

Lew’s predictions of a weak Christmas trading period appear to have materialised as Myer announced a five per cent sales slump in the first two weeks of November, which could heavily impact first half profits as excess stock is liquidated in sales and heavy marketing costs are accrued.

Retail Food Group (ASX: RFG) saw its shares take a tumble after a Fairfax Media investigation into its franchise model.

The stock fell more than 35 per cent on solid volumes after claims were published that hundreds of its Donut King, Brumby’s and Gloria Jean’s stores were going to the wall.

Central bankers assert themselves

Central bankers always like to carefully remove the punchbowl as soon as the party really gets going and this week was no exception.

The US central bank on Wednesday raised the benchmark interest rate for the third and final time this year, and indicated it was not likely to be more aggressive next year.

It started with the US Federal Reserve increasing the key lending rate 25 basis points to 1.25 to 1.5 per cent and signalling that there were three more rises to come in 2018 and another in 2019.

A strong jobs market and growing economy were cited as the reasons for raising rates and the Fed also indicated it would be paring back its massive balance sheet a little faster as well.

China’s central bank quickly followed the US, adding a minuscule five basis points to money market interest rates as Beijing tried to prevent destabilizing capital outflows without hurting economic growth.

While that increase is more symbolic than substantive, it at least shows the intention for China to follow the US up the yield curve and begin to reward savers rather than borrowers.

Chinese market interest rates have been rising independently of central bank moves as the government pursues a range of policies to lower leverage and debt in the economy.

The European central bank and the Bank of England held rates for now but there is little doubt the global move is cautiously onwards and upwards.

Bitcoin riles up the regulators

Central bankers are also getting upset by the blistering pace of Bitcoin’s price appreciation, perhaps neglecting the fact that the cryptocurrencies are on the whole much more disciplined about “printing’’ new coins than the central bankers have been.

Our own Reserve Bank governor Philip Lowe said there is a “speculative mania” surrounding cryptocurrencies and played down the chances of the central bank issuing a digital Australian dollar.

Governor Lowe said cryptocurrencies were being driven by a wave of speculation and were not about to replace conventional, government-issued money.

Outgoing US Federal Reserve Yellen agreed, saying Bitcoin is a “highly speculative asset” that “doesn’t constitute legal tender.”

Bitcoin has surged about 17 times in value this year, prompting caution from central bankers around the world.

“Bitcoin at this time plays a very small role in the payment system,” said Yellen, adding that bitcoin is “not a stable store of value.”

Bitcoin trading ramping up

None of which dissuaded the bitcoin enthusiasts with Bitcoin futures contracts trading on the Chicago exchange CME Group at the beginning of this week and set to commence trading on the Cboe Global Markets December 17.

That hasn’t pleased some of the larger banks given the volatile nature of the cryptocurrency.

The CME bitcoin futures contract operate under the ticker BTC and are equal to five bitcoins, whilst the Cboe equivalent will have the ticker XBT and be on an equal 1:1 footing with bitcoin. Margin rates are set to be around 30-35 per cent and trades will be settled in US dollars.

Cryptocurrencies might be volatile but they are looking less likely to disappear in a hurry with their total value broaching the US$520 billion mark this week.

Small caps set the pace

As usual it has been a heady time at the small cap end of the ASX with plenty of price movements in response to strong news flow.

Northern Cobalt (ASX: N27)

Northern Cobalt made an announcement late on Friday with news it had acquired nine prospective lithium tenements in the Northern Territory’s northern Arunta pegmatite province.

Meanwhile the latest assays from the Wollogorang drilling campaign have returned cobalt grading up to 2.33%, as well as 1.01% nickel and 0.45% copper.

Further assays from the 137-reverse circulation and 10 diamond core drilling program are anticipated in batches through to February.

The company seemingly targeting the metals required for lithium-ion batteries.

Ookami (ASX: OOK)

Ookami announced it plans to secure a 18.23 per cent stake in blockchain technology company Brontech for A$933,240.

Built on blockchain ‘lossless’ technology, Brontech’s digital identity platform can collect data directly from its users.

According to Ookami, Brontech’s data market place disrupts traditional data brokerage models such as those used by Equifax, Experian and Acxiom.

Should the proposed deal be approved by shareholders, Brontech Founder and CEO, Ms Emma Poposka, will be appointed to the Board of Ookami as a non-executive director.

DigitalX (ASX: DCC)

Keeping in the digital realm, DigitalX this week announced plans to reignite its cryptocurrency market maker division, offering digital currency liquidity.

DigitalX said it has more than A$18 million in liquid assets and its board has approved investing up to A$1 million in restarting its market making services.

The company plans to use arbitrage trading to take advantage of mispricing across exchanges.

engage:BDR (ASX: EN1)

Making its ASX debut this week was digital advertising company engage:BDR.

The company is run by co-founder Ted Dhanik, who served as Head of Strategic Marketing at Myspace from its inception in the early 2000s until 2008.

Dhanik is joined on the Board of engage:BDR by Tom Anderson who was the person that automatically became everyone’s first friend on Myspace.

Anderson founded Myspace, but here’s a fun fact…his profile pic is one of the most seen images of all-time, being seen by more people than Leonardo Da Vinci’s Mona Lisa painting.

The company’s core business is its proprietary technology that manages internet video and display advertising for advertisers, advertising agencies and the website which display those advertisements.

Its revenues have grown from $1.3 million in 2009 to $20.5 million in 2016.

engage:BDR has long-standing relationships with some big names including: McDonalds, Hyundai, Best Buy and American Apparel.

Poseidon Nickel (ASX: POS)

Poseidon Nickel will commence a drilling campaign next month at its fully-owned Medusa Lithium Project, near the company’s Lake Johnston operations in Western Australia.

Reverse circulation drilling will be carried out with 4,000m contracted across the project. Previous rock chip sampling returned up to 3.85% lithium.

Poseidon is targeting the electric vehicle, sustainable energy and consumer electronic markets which all require the lithium-ion battery as the power source.

According to the company, it is waiting for the nickel price to hit US$6 per pound and hold before recommissioning its Silver Swan mine.

The nickel price has been climbing in recent times and is currently sitting at around US$5/lb.

Altech Chemicals (ASX: ATC)

Altech Chemicals has received approval from the German government for its export credit cover.

This will allow Altech to access the majority of finance required to construct its proposed high purity alumina plant in Malaysia.

The company plans to develop the alumina using feedstock from its kaolin deposit in Western Australia that has a JORC-compliant resources to support 250 years of operation and contains low contaminants such as iron.

Further details on the export credit cover are expected in the coming days.

Queensland Bauxite (ASX: QBL)

Continuing recent news flow, Queensland Bauxite’s majority owned subsidiary Medical Cannabis signed a contract to establish a JV with a group of chemists who have created a cannabis-based pain relief pill, in what the company has labelled a “world first” for the medical cannabis sector.

For an initial $1 million, Medical Cannabis will be able to test and exclusively market the short and extended pain relief pills in Australia and New Zealand.

Both companies will equally share the funding and profits for the joint venture following the initial investment.

Empire Resources (ASX: ERL)

WA-based gold miner Empire Resources has reported a 45 per cent increase to its underground resource at Penny’s Find.

The updated underground resource now sits at 248,000 tonnes grading 7.04 grams per tonne gold for 56,000 gold ounces, up from the previous estimate of 170,000t at 5.40g/t gold.

The new resource extends 250m below the surface and remains open at depth and is located under the current open pit operation.

By the end of November, Empire had recovered more than 2,200oz gold from its latest gold processing campaign at Penny’s Find.

At the company’s base case of a $1,500/oz gold spot price this would generate around $3.3 million, if sold at today’s spot price which is sitting at $1,639/oz, it would bring in $3.6 million.

Phosphagenics (ASX: POH)

Phosphagenics reported its second successful study of its TPM drug delivery system in combating heat stress in poultry.

The study confirmed the optimum dose to reduce the negative impact of environmental stress, particularly heat, in birds.

According to Phosphagenics, the global poultry feed market is currently worth more than A$180 billion and is predicted to reach A$220 billion by the year 2020.

The company is also investigating TPM’s effectiveness in pigs and has a trial nearing completion for use in cattle.

Week ahead

This week the big things to watch out for will the minutes of the latest RBA meeting minutes on Tuesday and the beginning of Bitcoin futures trading on the Cboe.

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