Weekly review: COVID grinch almost steals Christmas market success
WEEKLY MARKET REPORT
Like a grinch trying its hardest to spoil Christmas, the latest COVID-19 outbreak in Sydney really took the shine off what had otherwise been another terrific week on the share market.
As the numbers kept rising on the Sydney outbreak to hit 28, the numbers on the ASX 200 started heading in the other direction as the fear of the unknown took precedence over a strong lead from Wall Street and solid commodity prices.
By the end of the day the ASX 200 had dropped by 81.2 points, or 1.2%, to 6675.5 points as investors digested the threat of another round of interstate lockdowns to cap off what has been a forgettable year.
Seventh weekly rise but the trend turned ugly
Despite all of that, the market recorded its seventh weekly rise but compared to the spirited trading that had dominated the week and pushed the index close to 10-month highs, the final trend was less than encouraging.
By the end of the day all states had imposed restrictions on the Sydney hot spots on the northern beaches and Christmas celebrations and travel plans were thrown into disarray.
There may have also been some pre-holiday profits being taken, although the thumping experienced by travel stocks confirmed that the resurgent pandemic was highly influential.
Travel stocks lead the falls
With shutdowns and restrictions being announced, shares in airline Qantas (ASX: QAN) dived 3.5%, Flight Centre (ASX: FLT) shed 2.7% and travel booking website Webjet (ASX: WEB) fell 1.7%.
As bad as those falls were, they weren’t the worst with some company specific news really slamming the brakes on three particular companies.
Stormy weather for QBE
Shares in QBE Insurance (ASX: QBE) took a 12.5% hammering after the company said that it expected a US$1.5 billion statutory net loss in the current 2020 financial year due to a US$520 million goodwill write-down of its North American business.
QBE was also hit by expected COVID-19 costs of US$470 million and a further US$130 million of excess catastrophe costs.
While the insurer’s interim CEO Richard Pryce said he was confident of the future of the business but also “very disappointed” with the result, investors decided to latch on to the disappointment.
Bad trial results for Mesoblast
Another company which suffered a major decline was biotechnology and health company Mesoblast (ASX: MSB), with shares falling a solid 36% after a trial update for its proposed treatment for sufferers of Acute Respiratory Distress Syndrome (ARDS), which relates to COVID-19 sufferers.
The trial was hoping to achieve a 43% reduction in mortality at 30 days but results so far are not backing up that target.
A2 Milk goes sour
Another company in the doldrums was A2 Milk Company (ASX: A2M), with shares slumping 24% after it downgraded its future earnings expectations.
The company said the impact of COVID-19 on its daigou or surrogate shopping market has been more significant and protracted than first anticipated.
It wasn’t just the travel stocks and companies with specific issues that were suffering with the four big banks all falling, along with technology companies and property stocks.
A few winners
There were a few notable winners on an otherwise forgettable day with most of the gold miners and shares in the big supermarkets Coles (ASX: COL) adding 0.49% and Woolworths (ASX: WOW) 1.34%.
By now investors are well aware that the supermarkets can earn extra sales and profits out of any COVID-19 restrictions.
Other winners included iron ore giant Fortescue Metals (ASX: FMG) which added 2.2% and fellow miner Rio Tinto (ASX: RIO), which rose 0.9%.
Small cap stock action
The Small Ords index finished the week up a marginal 0.31% to finish on 3090.6 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
Investigator Resources (ASX: IVR)
Investigator Resources has received more “eye watering” silver grades from drilling at its flagship Paris project in South Australia.
Infill drilling generated 2m at 6,247g/t silver from 29m, including 1m at 12,447g/t silver; 29m at 534g/t silver from 45m; and 14m at 715g/t silver from 63m.
Wider high-grade intercepts were also unearthed at the southern end of the Paris resource. The company expects assay results to continue flowing in over the next three months.
Sparc Technologies (ASX: SPN)
Ben Yerbury has joined Sparc Technologies to head up a graphene bio-medical sensor division which will work with the University of Adelaide to develop non-invasive disease sensing devices for humans and animals.
The research will focus on developing graphene-based devices that can detect volatile organic compounds in exhaled breath, with VOCs known to be indicators of disease.
Sparc anticipates this device could have “profound” global consequences in early detection and management of disease including transmissible viruses such as COVID-19 and congenital or neoplastic diseases including cancer.
K-TIG (ASX: KTG)
K-TIG’s growth strategy appears to be breeding success with the high-speed welding technology developer showing a large increase in December quarter revenue so far, with total sales predicted to exceed $400,000 for the period.
The company noted its four strategic pillars had experienced traction including customer adoption, US market expansion, the UK nuclear industry, and movement into the defence and space sector via strategic partnerships.
K-TIG managing director Adrian Smith said the company’s recent entry into the US market is driving increasing interest in the company’s technology and he was confident this will result in additional sales in the coming months.
Vintage Energy (ASX: VEN)
Gas explorer Vintage Energy revealed independently certified 2P (proved and probable) reserves for its Vali field in Queensland’s Cooper Eromanga Basin.
The field’s Patchawarra formation now has estimated gross 2P reserves of 30.3 billion cubic feet – equating to 33.2 petajoules of gas.
Vintage anticipates the gas it eventually produces from the Vali field will be “much greater” than the 2P reserve estimate, with plenty of upside remaining.
Argent Minerals (ASX: ARD) and MinRex Resources (ASX: MRR)
With nearby projects in New South Wales’ East Lachlan Fold Belt, Argent Minerals and MinRex Resources have teamed up to identify potential synergies.
Under the strategic agreement, the companies have already sourced an all-terrain reverse circulation drill rig and will split costs and share it for their respective exploration programs in 2021.
Argent managing director George Karageorge said the co-operative agreement will give the companies “unique opportunities” such as sharing the RC rig.
Legacy Iron Ore (ASX: LCY)
WA gold explorer Legacy Iron Ore has begun drilling the Yilgangi deposit within its South Laverton project.
The company will complete up to 12 holes for 1,000m this month, with the program designed to delineate additional mineralised zones at depth and along strike from the Golden Rainbow deposit within the project.
Results from this program will assist in building exploration plans for 2021 across the deposit and wider project, with Mt Celia the ongoing focus.
The week ahead
Given the events that shaped the end of the week, the market moves in the coming week are likely to be highly responsive to the progress of the Sydney COVID-19 outbreak.
If the health authorities seem to be getting their arms around the cluster, then the market could be free to follow stronger leads but if infection numbers and border closures ramp up, then worries are likely to escalate with them.
Complicating matters are the Christmas and Boxing Day trading holidays, which leaves two weeks in which there will be only four trading days and there will also be much lower trading activity as people go on holidays.
Despite the wind down in activity, there are still quite a few statistical releases to watch out for.
Locally, there are consumer confidence, retail trade, job numbers, private sector credit and international trade figures to watch out for.
Offshore, there are a string of US figures including economic growth, home sales, consumer confidence, manufacturing and home sales.
Chinese industrial profits and purchasing manager indices will also be released.