Weekly review: market stuck in the middle on China trade worries

Stock market stuck ASX 200 China trade worries May 2020
WEEKLY MARKET REPORT

Once again, the Australian share market has started the week buoyed with COVID-19 vaccine optimism only to end it on a more realistic downward note as the reality of Chinese trade restrictions hit home.

Still, it was the fourth week in a row in which the ASX 200 has managed to claw out a rise – this time 1.7% – and there has only been one week which closed down since the market bottomed on 23 March.

That leaves us all stranded fairly close to the middle, still down around 22% from the February market high but a significant 26% rise on the March low.

There is no shortage of experts making arguments that the market should be much closer to that record high or the March low but with major macroeconomic news, trade ructions and COVID-19 vaccine developments all in the mix, it would be a brave investor indeed who committed entirely to one view or the other.

Muddling through the middle seems safest bet

The muddle through option seems the most plausible at the moment and that is probably why the ASX 200 once again sank during Friday trade, losing 53.4 points, or 0.96%, to close at 5497 points.

China was once again to blame for some of the negative price action with the first day of the week long National People’s Congress failing to set an economic growth target for 2020.

Combined with the fairly ominous trade repercussions for Australia’s role in promoting an independent inquiry into COVID-19 and there was plenty for Australians to worry about from China.

Chinese trade worries mount for Australia

So far on the trade front we have essentially entirely lost the barley trade to the Middle Kingdom, there are restrictions on beef exports, new inspections on iron ore exports and plenty of noise being made about Australian coal, wine and even education exports.

We are not the only ones feeling the heat from China, with new security restrictions planned for Hong Kong and the US.

So, it was little wonder that all sectors turned red on Friday and the losses gathered pace during the day, particularly energy stocks which lost 2.24% after oil futures turned bleak.

Our big miners were also down, which seemed a little inconsistent with stronger iron ore prices on the back of the promise of more spending by China and supply concerns around virus-hit Brazil, the other major seaborne iron ore supplier.

Rio Tinto (ASX: RIO) was down 2% at $91.30 and BHP (ASX: BHP) shed 0.55% to $34.32, while Fortescue Metals (ASX: FMG) edged 0.15% lower to $13.58.

Even healthcare and banks feeling the pain

It was a similar scene for the big banks, which all recorded losses ranging from 0.59% and 1.16%.

Not even the usually defensive health sector was immune to the falls, largely due to a poor performance from heavyweight CSL (ASX: CSL) which weakened by 2.36% to $290.93.

Small cap stock action

The Small Ords index rose a stellar 4.37% this week to close on 2539 points.

ASX 200 Small Ords index chart May China covid-19
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Wide Open Agriculture (ASX: WOA)

An exclusive global licence signed with Curtin University will allow regenerative food and agriculture company Wide Open Agriculture to develop a protein alternative for human consumption using sweet lupins.

Researchers will use a proprietary technology to modify the lupin seed and enable a protein to be derived from it to form a gel, making it suitable for applications in a range of food sectors.

The project aims to establish a viable commercial product which can compete with leading plant-based proteins soy and pea.

Managing director Ben Cole joined Small Caps on a podcast this week: listen here.

Anson Resources (ASX: ASN)

A series of “outstanding” projections have been the highlight of an independent preliminary economic assessment of Anson Resources’ Paradox brine discovery in Utah.

The report outlines a three-stage project roll-out based on a multi-commodity, multi-revenue development model with high returns and quick paybacks.

Bromine will be the first mineral extracted to fast-track the project to cash flow and fund the development of plants to extract lithium and other minerals.

Bryah Resources (ASX: BYH)

A new high-grade zone of mineralisation has been discovered at the Bryah Basin manganese joint venture, shared by Bryah (90% equity) and OM Holdings (ASX: OMH).

Grades of more than 30% were intersected at the Brumby Creek prospect and have been deemed sufficient enough to justify a near-term direct shipping production strategy.

The campaign was fully-funded by OM Holdings, as part of the Bryah Basin joint venture agreement executed in 2019.

DroneShield (ASX: DRO)

Belgium Police have selected an anti-drone product developed by Australian firm DroneShield as the preferred solution to improving national security threats across the European Union.

Initial orders will begin next month for the DroneGun Tactical battery-powered, single rifle-style product which works against a range of drone models to neutralise potential threats.

The contract signifies a world-first roll-out of counterdrone equipment by a government customer.

Antisense Therapeutics (ASX: ANP)

A phase 2 clinical trial by biopharm company Antisense using immunomodulatory therapy ATL1102 for duchenne muscular dystrophy has met its primary safety endpoint and achieved strong initial efficacy results.

The study showed that one dose a week of the drug over a 24 week period could improve or stabilise different measures of motor function and strength in DMD patients.

Antisense could now potentially advance to a phase 2b trial before year-end.

Amplia Therapeutics (ASX: ATX)

Two months after receiving an orphan drug designation for lead drug candidate AMP945 to treat pancreatic cancer, Amplia this week received a second designation for use of the drug in the treatment of chronic lung disease.

Pre-clinical studies on a lung fibrosis model have previously shown AMP945 can successfully reduce and reverse the formation of fibrotic (or hardened) tissue.

Amplia plans to commence a phase 1 clinical trial of the drug in healthy volunteers later this year and progress to a phase 2 trial next year.

Element 25 (ASX: E25)

A pre-feasibility study has confirmed the low-cost, long-life potential of Element 25’s flagship Butcherbird manganese project in WA’s far north.

The proposed $14.5 million development focuses on the Yanneri Ridge deposit which has been determined to be of most economic value and amenable to simple beneficiation.

The company said it was keen to embark on a rapid start-up and move to producer status earlier than originally planned.

Imagion Biosystems (ASX: IBX)

The cancer detection company this week signed an agreement with Siemens Healthineers to explore the use of its patented MagSense nanoparticles as a contract agent in MRI scans for metastatic breast cancer patients.

The technology would enhance the contrast between healthy and diseased tissue, providing an accurate and non-invasive method of detecting cancer using existing medical equipment.

Imagion said MagSense could potentially eliminate biopsies and other surgeries, improve patient lives and reduce overall healthcare costs.

The week ahead

For the coming week, we once again face a bit of a data conundrum.

It may not be as bad as the $60 billion “accounting error” the Federal Government has made with the JobKeeper program which now covers 3.5 million people rather than 6 million but it is troubling nonetheless.

The problem now is that many of the Australian Bureau of Statistics figures coming out this week such as construction activity and business investment will straddle the period in which activity was fairly normal and when the COVID-19 shutdowns took place.

That makes it very difficult to interpret correctly, although the faster private sector figures such as the ANZ/Roy Morgan consumer sentiment index may provide more timely readings.

Economists are really struggling to get an accurate read on what is happening in the Australian economy at the moment and that is obviously not helped by stuff-ups such as the $60 billion JobKeeper mistake.

Still, it could have been worse – imagine the hullabaloo if the program had overspent $60 billion rather than the opposite!

Overseas, there is an array of US data including economic growth, home prices and durable goods orders.

For China, factory and services activity gauges for May should give us a good indication of how China is recovering as it opens its economy back up after the initial virus pandemic.

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