Weekly review: debt, iron ore and tapering combine to push share market down

Debt iron ore tapering push share market down September 2021 ASX

A heady combination of Chinese property debt, iron ore prices and US Federal Reserve plans to taper bond purchases conspired to leave a dent in the Australian share market.

In the end teetering Chinese property group Evergrande seems to have survived for now and the US Fed plans to taper were reasonably well received but the yo-yo-ing iron ore price pushed down the miners and saw the ASX 200 lose 0.4% to 7342.6 points on Friday.

That led to the market closing down 0.65% for the week, although some of the really bearish sentiment from early in the week had reversed.

Stability fears over Evergrande ease

Initially there were real fears that the inability of giant and heavily indebted Chinese property group Evergrande to pay its loans as they fell due could lead to a much wider financial contagion within China and also spreading to the rest of the world.

However, after Evergrande avoided defaulting on their debt by negotiating over some interest payments those worries reduced dramatically with indications being that the Chinese property market would continue to limp along without any immediate risks.

The decision by the People’s Bank of China to pump another $US18.6 billion of liquidity into its banking system was also seen as a positive, bringing the amount of cash the central bank has injected since last Friday to about $US50 billion.

Bring on the carve up?

Some reports that authorities are putting together a restructuring and rescue of Evergrande to carve it up between a number of state-owned entities was also greeted as confirmation that China seemed to be keen to do whatever it takes to avoid a big property collapse which could dent the nation’s economic growth.

Mining stocks were oscillating during the week with some predictions saying that the iron ore price could stay below $US100 a tonne well into next year.

A lower iron ore price could leave a big dent in Australia’s economy, although the fact that fast rising and then falling iron ore prices were not extrapolated too much might soften the blow.

Lower iron prices could leave a dent

There is no doubt though that if prices fall below US$100 a tonne for the medium term it would cause significant pain for miners and government budgets.

In the end BHP (ASX: BHP) shares fell 1.72 % to $37.72 on Friday, while Rio Tinto (ASX: RIO) shares rose 0.47% to $99.33 and Fortescue Metals (ASX: FMG) shares fell 1.22% to $15.34.

Some individual company news helped some companies with Solomon Lew’s Premier Investments (ASX: PMV) up 5.5% to $29.15 on Friday after revealing a jump in full year profits on Thursday and plans to acquire any attractive retail businesses that are struggling due to lockdowns.

Similarly, Washington H. Soul Pattinson (ASX: SOL) finished up 3.8% to $39.16 after revealing a solid profit increase.

Energy distribution provider AusNet (ASX: AST) saw its shares fly by 29% during the week after it revealed two sweetened takeover offers early in the week.

Property classified company Domain (ASX: DHG) rose by 1.5% to hit a record high of $5.78 on Friday.

Heading in the opposite direction was Centuria (ASX: CNI), which completed a $300 million placement on Friday but shed 2.52% to $3.49 while shares in gold miner Ramelius Resources (ASX: RMS), fell 6.1% to $1.31.

Small cap stock action

The Small Ords index fell 0.74% this week to close on 3493.5 points.

September 2021 ASX 200 small ords chart
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Lake Resources (ASX: LKE)

It was a big news week for Lake Resources, which revealed it had further cemented its partnership with Lilac Solutions.

The companies executed a deal that paves the way for Lilac to secure a 25% equity in Lake’s Kachi lithium brine project in Argentina.

In return for the stake, Lilac will contribute its direct extraction lithium processing technology, engineering teams, an onsite demonstration plant and invest US$50 million towards advancing Kachi once it has acquired its interest.

A few days later, Lilac announced it was raising US$150 million to expand and deploy its technology including at Kachi.

iCandy Interactive (ASX: ICI)

In an effort to expand its reach in the global gaming sector iCandy Interactive has acquired an almost 8% interest in ASX-listed game developer Mighty Kingdom (ASX: MKL).

iCandy scooped up 11.78 million shares at $0.135 to secure the interest, with iCandy saying the acquisition will boost its reach in the Asian gaming market.

The company also noted there would be value added through collaboration between it and Mighty Kingdom which it says is a very similar business.

AD1 Holdings (ASX: AD1)

AD1 Holdings’ subsidiary Art of Mentoring is set to pilot a wellbeing program for the Australian Government’s Department of Defence.

The contract is valued at $130,000 over 12 months and is an addition to two other deals Art of Mentoring already has with the department.

AD1 says the contract positions Art of Mentoring as a preferred provider of mentoring software and services to federal, state and local governments.

Nova Minerals (ASX: NVA)

Gold explorer Nova Minerals had a positive news week – starting with the discovery of a massive polymetallic vein system at its Estelle gold project in Alaska.

Rock chip sampling at Stoney, Rainy Day and T5 prospects returned up to 48.4g/t gold, 2,720g/t silver and 2.4% copper.

Sampling was also undertaken at the Train and Shoeshine prospects and revealed a peak result of 30.4g/t gold.

Nova chief executive officer Christopher Gerteisen said the latest results would feed into the global resource inventory at Estelle that includes the 4.7Moz Korbel deposit.

Aura Energy (ASX: AEE)

Aura Energy re-listed on the ASX on Thursday to pursue its plans of fast-tracking the Tiris uranium project to production.

Chief executive officer and managing director Peter Reeve said Tiris remains “one of the most compelling” uranium projects in the world with its estimated low capital cost and short development time-line.

Tiris contains 56Mlb in uranium resources in Mauritania. Aura will also assess the vanadium potential at Tiris.

92 Energy (ASX: 92E)

Another uranium hopeful 92 Energy’s production aspirations have been given a boost with assays revealing the company had discovered a new uranium zone at its Gemini project in the Athabasca Basin, Saskatchewan.

Drilling intersected 5.5m of 0.12% uranium oxide (1,200ppm uranium oxide), including 1m at 0.28% uranium oxide.

Within a 0.5m subinterval there was 0.36% uranium oxide (3,600 ppm) from 234.5m.

92 Energy managing director Siobhan Lancaster described the intercept as an “extraordinary result” and a testament to the company’s chemically driven exploration strategy.

The week ahead

Australia goes into the final quarter of the year with a swag of economic statistics pointing the way including retail trade, consumer confidence, job vacancies and housing data as the damage from continuing lockdowns in our two biggest cities continues to mount.

Retail sales are expected to slide in August although the anticipated easing of lockdowns could see this being the low point with a recovery to come.

One keenly awaited result will be CoreLogic’s home value index will show how hard property prices have been rising.

Overseas, interest in what is happening in China is likely to continue with factory and services data and company profits providing indications of how things are going on the ground in what can be a difficult country to follow.

In the US, most of the economic figures are set to be positive as the country continues to recover, with manufacturing, house prices, GDP, personal spending and durable good orders all expected to point to the recovery continuing to gather pace.

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