Weekly review: Australia outperforms as US flirts with a bear market

Australia outperforms ASX US bear market May 2022
WEEKLY MARKET REPORT

With the US share market toying with a big enough fall to signal a bear market, the Australian market has once again held up stronger in the face of widespread weakness.

It may be explained by our relative lack of technology listings and by our preponderance of “old world” mining and banking giants but whatever the reason, Australia is holding up better than the US.

The S&P/ASX 200 closed up 1.2% or 81.1 points to 7145.6 points – 6.7% or 487.2 points off the all-time high for the index of 7632.8, which was set in mid-August last year.

By contrast, at the end of Thursday trade, the broadest US index, the S&P 500, had fallen 18.7% from the record high it hit early this year – very close to the 20% mark that popularly defines a bear market.

Chinese interest rate cut pivotal in market turnaround

The Australian rally came after Chinese banks cut a key interest rate for long-term loans by a record amount – reducing mortgage costs and potentially boosting weak loan demand as China deals with a property slump and continuing crippling COVID-19 lockdowns.

The five-year loan prime rate, a reference for home mortgages, was lowered to 4.45% from 4.6%, according to the People’s Bank of China – the largest reduction since a revamp of the rate in 2019.

The lower rate will be applied to new mortgages immediately, while existing mortgages won’t be repriced until next year at the earliest.

Miners and banks recover nicely

That news was gratefully received by Australian investors who busily piled back into the big miners and banks.

BHP (ASX: BHP) was up 2% or $0.95 to $47.18, Rio Tinto (ASX: RIO) shares gained 1.5% to $108.35 and Fortescue Metals shares (ASX: FMG) jumped almost 3.9% to $20.15 as investors figured the Chinese news would be good for iron ore demand and prices.

Similarly the banks were also higher with Commonwealth (ASX: CBA) shares up 0.8% to $104.60, NAB (ASX: NAB) rising 0.7% to $31.07, ANZ (ASX: ANZ) gaining 0.9% to $25.50 and Westpac (ASX: WBC) 0.5% higher to $23.57.

Even some of the big retail giants such as Coles (ASX: COL), Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) managed to stage a comeback after being hammered on Thursday after inflation slashed retail spending in the US and caused retail stocks to get slammed including US giants Walmart and Target.

The biggest rises on the Australian market, though, were in the IT, materials and consumer discretionary sectors with Block (ASX: SQ2) shares up an impressive 9.9% to $127.64 and Computershare (ASX: CPU) gaining 3% to $24.36.

Crown shareholders approve sale

In stock specific news, Crown shareholders gave the nod for the $8.9 billion sale of the group to Blackstone, with Crown (ASX: CWN) shares firming 0.2% to $12.84.

Major AGL (ASX: AGL) shareholder and IT billionaire Mike Cannon-Brookes also outlined his vision for the company which includes changing the board composition, phasing out coal power generation faster and scuttling the proposed demerger of the company.

Retail giant Woolworths also announced that it had spent $243 million buying a majority stake in ASX-listed online marketplace MyDeal (ASX: MYD) for $1.05 a share.

While there was some shareholder scepticism that Woolworths would be able to go head-to-head with e-tailers such as Kogan (ASX: KGN), Amazon and Catch, it was great news for MyDeal shareholders, who enjoyed a 55.8% share price rise to $1 a share.

Small cap stock action

The Small Ords index rose 1.43% this week to close on 3049.4 points.

2022 May ASX 200 all ords chart
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

PharmAust (ASX: PAA)

After receiving its monepantel (MPL) tablets, PharmAust is readying to begin its phase 1 clinical trial of MPL in motor neurone disease (MND) later this month.

Australian not-for-profit organisation FightMND has provided funding to assist the trial with a commitment of $880,000 in 2020, which is being paid in instalments once PharmAust has completed various milestones.

As PharmAust gears up for the MPL trial in MND, the company revealed it has received a $210,000 pre-payment of a forecast FY2022 research and development tax incentive claim.

Radium Capital has agreed to provide early access to 80% of PharmAust’s expected rebate for FY2022.

Resource Base (ASX: RBX)

Wide-spread clay REE have been identified at Resource Base’s recently granted tenement EL007646, which makes up a small part of the company’s wider Mitre Hill project that spans the Victorian and South Australian border.

Shallow aircore drilling at the tenement intercepted clay REE concentrations up to 1,421ppm TREO from 3m, with 70% of the holes hitting TREO grades above 500ppm.

Resource Base says the grades it had intercepted were comparable to Australian Rare Earths’ nearby Red Tail and Yellow Tail deposits, which have a combined resource of 39.9Mt at 725ppm TREO.

The company will carry out further drilling on EL007646 to test where mineralisation remains open, as well as across neighbouring tenements once they are granted.

Crowd Media (ASX: CM8)

As part of its commercialisation drive in 2022, Crowd Media has secured two agreements for integration of its AI-driven Talking Head platform.

Israeli data tech company SourceFlare Ltd will blend Crowd’s technology into its own platform to optimise customer acquisition and lead generation.

SourceFlare will pay about $7,100 a month to Crowd for access to the Talking Head platform as well as ongoing service and support.

The second agreement is with AI-driven Impssbl Corporation, which will apply Crowd’s Talking Head technology as a series of interactive NFTs.

Profits from NFT series will be split with 70% to Impssbl and 30% Crowd.

Provaris Energy (ASX: PV1)

Development of Provaris Energy’s compressed hydrogen ship is advancing, with several work packages now complete.

The company’s team has finished the hull design optimisation, finite element modelling, shipboard safety systems, general arrangement drawings and a ship outline specification.

Provaris is sharing the work packages with shipyards to refine construction schedules and capital cost estimates, which will feed into Approval for Construction application, which is targeted for mid-next year.

Meanwhile, scoping and feasibility studies are due for completion in July.

Havilah Resources (ASX: HAV)

OZ Minerals has inked an option to acquire Havilah Resources’ Kalkaroo copper-gold project in South Australia for $205 million.

The companies signed a conditional binding terms sheet on Tuesday, where Oz will conduct a study program on Kalkaroo to confirm and expand existing resources and optimise the project over 18 months.

Kalkaroo has a current resource of 245Mt at 0.45% copper and 0.39g/at gold.

Subject to OZ exercising its option to acquire Kalkaroo, and achievement of certain milestones, additional contingency funds potentially amounting to $200 million may be payable to Havilah.

As a result, Havilah may receive up to $405 million for Kalkaroo over time.

MyDeal (ASX: MYD)

Major retailer Woolworths Group will acquire 80% of MyDeal in an all-cash deal valued at $1.05 per share.

This represents a 62.8% premium to MyDeal’s last closing price of $0.65 a share and values the equity at $271.8 million and indicates an enterprise value of $242.6 million.

Woolworths chief executive officer Brad Banducci says acquiring MyDeal will expand the retail giant’s offerings beyond groceries.

“The addition of MyDeal to Woolworths Group represents a further step towards delivering a more holistic customer experience in food and everyday needs and materially expands our marketplace capabilities, especially in general merchandise,” he said.

“It will also support MyDeal’s growth by accessing [our] capabilities across e-commerce, supply chain, retail, loyalty and more,” Mr Banducci added.

Reckon (ASX: RKN)

Under an agreement announced this week, Reckon will sell its accounts practice management group to UK-based The Access Group subsidiaries for $100 million.

Subsidiaries Access Software Australia, Access Workspace NZ and Access UK will purchase Reckon’s assets including its APS and Reckon Elite practice management products.

Reckon will return the majority of post-tax proceeds from the transaction to its shareholders via a partially-franked special dividend.

The company is retaining its business groups that provide accounting and payroll software, wealth management solutions, and legal practice management.

During FY2021, these divisions brought in a combined $50 million in revenue, which resulted in EBITDA of $17 million.

Following the sale, Reckon will remain focused on expanding its cloud-based software technology into high-growth markets in Australia and the US.

The week ahead

Once again US releases including reads on economic growth and inflation are likely to be the biggest factors in markets but there are some things to watch out for here in Australia.

Two top Reserve Bank figures – Assistant Governor Christopher Kent and Assistant Governor Luci Ellis are giving speeches and there will be a range of local data out as well.

Household spending, consumer sentiment, construction work and retail spending should combine to see whether Australian consumers are following down the US path or are being resilient in their spending patterns.

This week’s top stocks

    Join Small Caps News

    Get notified of the latest news, interviews and stock alerts.