Weekly review: market drops 3.9% for the week as China lockdowns return
WEEKLY MARKET REPORT
It was a fairly dismal week for the Australian share market, which dribbled to a lower close on Friday, shedding 0.3% or 16.9 points, and the ASX 200 finishing at 6828.7 points.
That meant the index had shed a hefty 3.9% for the week and had studiously ignored a slightly positive lead from Wall Street, with both the S&P 500 and Dow closing higher.
It wasn’t too hard to look around and see what was dragging our market lower, with commodity prices falling heavily after the Chinese Government decided to force 20 million people living in Chengdu into lockdown for four days under its COVID-zero approach.
Iron ore stocks weaken
Unsurprisingly, that was tough medicine for the heavily China dependent mining sector which fell 2% with BHP (ASX: BHP) shares single-handedly slashing the most points from the index as they fell $0.77 or 2.1 % to $36.74.
The same situation applied to the other big iron ore players as they reacted to an 8% fall in the metal’s price with Rio Tinto (ASX: RIO) and Fortescue Metals (ASX: FMG) both dropping 2.5% with the ex-dividend status of BHP helping to lead to a weekly 10.3% mining index fall.
Tech looked good but then fell
The technology sector started Friday as a potential counter point, beginning the day strongly but after the Nasdaq futures began to turn south, and the share price rises were replaced by falls.
Some of the more notable tech falls included Novonix (ASX: NVX), with shares down a hefty 8.4% to $2.06, while shares in accounting software company Xero (ASX: XRO) were 2.3% lower and WiseTech (ASX: WTC) shares dropped 2.1%.
There were a couple of sectors that helped to stop the rot, with the major one being the big banks, with the defensive Consumer Staples sector the only sector to finish in positive territory for the week, up 0.3%.
Big banks rebound
Financials overall rebounded 0.7% as investors grew more accustomed to falls in new home loans as Commonwealth Bank (ASX: CBA) shares rose by 0.9% to $96.95, NAB (ASX: NAB) and Westpac (ASX: WBC) shares gained 0.8%, while ANZ (ASX: ANZ) was the laggard with a 0.5% rise to $22.75.
One stock that disappointed was AMP (ASX: AMP), which fell 1.7% as it lost the management of its $2.7 billion AMP Capital Retail Trust after the majority of unit holders opted for external control.
GPT Group (ASX: GPT), which is thought to be in the box seat to control AMP’s retail trust was the sector’s best performer with its shares rallying by 2.7%.
Small cap stock action
The Small Ords index crumbled 4.46% this week to close on 2862.6 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
AD1 Holdings (ASX: AD1)
AD1 Holdings reported group revenue had risen 12% for FY2022 to $6 million, which was driven by the company’s heavy investment in technology, product development, and sales and marketing.
“Moving into FY2023, we are well positioned to capitalise on a strong pipeline of contract wins which is currently 200% stronger than the same period last year,” AD1 chief executive officer Brendan Kavenagh explained.
The company followed up the strong FY2022 performance with news it was acquiring Scout Talent Group for $65 million.
Mr Kavenagh said the acquisition was consistent with AD1’s strategy of acquiring growing SaaS companies with rapidly expanding markets.
The Hydration Pharmaceuticals Company (ASX: HPC)
Revenue rose 80% for The Hydration Pharmaceuticals Company (trading as Hydralyte America) for the half year ending June (H1 FY2022).
The company achieved US$4.1 million for the period, which was underpinned by a 95% increase in e-commerce net revenue, which reached US$1.8 million for the period.
Traditional retail net revenue was also higher – up 69% to US$2.3 million.
Over the next half year period, Hydralyte America anticipates further online sales growth – propelled by its ongoing marketing investments.
Archer Materials (ASX: AXE)
Archer Materials hit its long-term technology and development goal of fabricating biochip device components less than 10 nanometres (nm) in size.
The company has been able to fabricate sub-10nm features “reproducibly and reliably”. It has done this by developing a number of advanced lithographic processes on silicon wafer in a clean room environment.
Archer chief executive officer Dr Mohammad Choucair said hitting this goal was “a significant technical achievement” for the company.
“We’re developing semiconductor devices that push the boundaries of modern technology,” he said.
Credit Clear (ASX: CCR)
Another small cap with a big revenue boost in FY2022 was Credit Clear, which unveiled a 95% increase for the period.
Revenue lifted to $21.5 million for the period, with $3.1 million of that coming from a record monthly performance in June.
Credit Clear also hit profitability in May and June and this is expected to continue throughout FY2023.
Since FY2018, Credit Clear has expanded at a compound annual growth rate of 183%.
The company finished out FY2022 with its annual revenue run rate at $37.4 million and with $10.2 million in the bank to fund its ongoing growth plans.
TZ Limited (ASX: TZL)
Smart locker and software technology company TZ Limited posted its first net after tax profit for FY2022.
The net after tax profit of $42,896 was considerably higher than the $1.66 million loss in FY2021.
Adjusted EBITDA for FY2022 had soared to almost $1.3 million from $137,364 in FY2021.
Underpinning the higher EBITDA and maiden profit was a 31% increase in revenue to $21.4 million.
TZ non-executive chairman Peter Graham said the company’s turnaround was facilitated by its software platform income stream.
RLF AgTech (ASX: RLF)
Another small cap to hit record revenue was RLF AgTech which reported its revenue had lifted 26% to $10.7 million in FY2022.
RLF AgTech managing director and chief executive officer Ken Hancock said the company had established stepping-stones in FY2022 to build revenue and expand the company internationally.
“We have made a significant investment of time and resources, which will set us up for strategic and aggressive expansion as a leading provider of high value crop nutrition products,” he said.
RLF AgTech closed out the period with $8 million in the bank to fund its growth strategy.
The week ahead
Looking forward to this week there is one item that absolutely dominates.
On Tuesday, the Australian Reserve Bank board meets to decide on the latest level for the cash rate which will have broad ramifications throughout the property and share markets.
If you believe the pundits, the key cash rate will be rising 50 basis points to 2.35% – a decision that would be followed by a range of interest rate rises on floating home loan rates as sure as night follows day.
Coming more slowly down the pike will be rises in the rates offered for deposits, although that part of the transmission of monetary policy has been the laggard for some time now.
Rising official interest rates are also bad news for shares and property because they increase the risk-free rate of return and make the current dividend and rental returns available look less generous.
That often causes a downwards adjustment to property and share prices.
If there is a 50-basis point rise, it will be the fourth straight rise of that size and a lot of the focus will switch to reading the tea leaves to try to work out how far the RBA will go before deciding it will take a pause in raising rates.
That speculation will also extend to a speech being given on Thursday by RBA Governor, Dr Philip Lowe, on “Economic Outlook and monetary policy.’’
Other releases to watch out for include the National accounts on Wednesday which are expected to show that the Australian economy expanded by about 0.8% in the June quarter.
Other local releases include consumer confidence, new car sales, job advertisements and balance of payments.
Internationally, the main things to watch for include Chinese inflation and international trade, US consumer credit and Chinese services.
US markets will also be closed on Monday due to the Labor Day holiday.