Weekly review: month long rise in the market comes to an end

Australian share market drop COVID-19 oil crash April 2020 stocks ASX
WEEKLY MARKET REPORT

Australia’s month-long share market rise came to an end this week with the ASX 200 falling 4.5%.

Not even a 25.5 point rise on Friday, adding 0.5% to 5242.6 points, was enough to recover from a four day fall as the oil price crashed and investors started to realise just how bad the economic data will get as the COVID-19 pandemic continues to stall economies around the world.

The pullback after four weeks of rises is also a reflection of the highly uncertain outlook for corporate earnings given that the outlook is so uncertain many companies have removed profit guidance entirely.

Stimulus supports share prices but oil is in freefall

While the staggering amount of fiscal and monetary support around the world has provided support for company valuations, picking which companies will do better or worse has proved to be very difficult without much guidance from management.

After helping to drive markets lower as oil price futures briefly went negative due to plunging demand and oversupply, the energy sector finally added some support to the Australian market with a 2% rise on Friday.

Some of the beneficiaries from a firming oil price included Oil Search (ASX: OSH) which was up 4.4% to $2.61 after a bleak week and Origin Energy (ASX: ORG) rose 2.5% to $4.84.

Energy and beaten down travel stocks get a boost

Energy wasn’t the only sector rising on Friday with the miners also enjoying a 1.2% daily rise, with Fortescue Metals (ASX: FMG) impressive 3.4% jump to $11.45 one of the most impressive.

Healthcare was also a bright spot with the index up 1.7% thanks to a 2.3% rebound from CSL (ASX: CSL) which rose 2.3% to $313.75 and Ramsay Healthcare (ASX: RHC) which jumped 2.4% to $61.94.

Bargain hunters were busy picking through the wreckage of the travel sector which has naturally been smashed by COVID-19 travel restrictions.

Qantas (ASX: QAN) shares flew 1.5% higher to hit $3.39, Webjet (ASX: WEB) was up an impressive 9.7% to $2.50, Corporate Travel Management (ASX: CTD) rose 6.8% to $9.08 while Flight Centre (ASX: FLT) jumped 4.2% to close at $9.12.

Mesoblast’s (ASX: MSB) remestemcel-L drug showed a 83% survival rate for COVID-19 sufferers with acute respiratory distress syndrome compared to 12% in patients who had not received the drug. Shares in the company rose 38.93% on Friday to close on $2.73.

It wasn’t all beer and skittles on Friday though with a few big names falling including James Hardie (ASX: JHA) dropping 2.3% to $17.81 and Macquarie Group (ASX: MQG) fell 2% to $95.01.

Chinese investment clamp down

This week saw two juniors of the receiving end of government rejections to Chinese investment in the critical metals sector.

Australia’s federal treasurer Josh Frydenberg banned Chinese rare earth giant, Baogang Group Investments, from investing $20 million in Northern Minerals’ (ASX: NTU) advanced Australian project that is set to break China’s monopoly over critical minerals dysprosium and terbium.

This was followed by AVZ Minerals (ASX: AVZ) announcing late on Friday that a proposed $14.1 million investment from the Chinese owned Yibin Tianyi Lithium Industry would be rejected by the Federal Government, according to Australia’s Foreign Investment Review Board.

What differentiates the AVZ case from Northern Minerals is that the former’s project is outside Australia, sending a strong signal to all companies that Canberra is watching the entire critical minerals sector.

Small cap stock action

The Small Ords index fell 4.84% this week to close on 2236.9 points.

Small Ords index ASX 200 chart April 2020
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Botanix Pharmaceuticals (ASX: BOT)

Synthetic cannabinoid company Botanix Pharmaceuticals received support from the US FDA to fast track its first antibacterial product BTX 1801.

The FDA’s Office of Antimicrobial Products granted BTX 1801 qualified infectious disease product (QIDP) status which now permits Botanix to receive a variety of incentives as part of its drug development program.

Botanix’s antibacterial product BTX 1801 is a treatment for the prevention of post-surgical infections.

The company plans to resume recruitment for clinical trial as soon as COVID-19 travel restrictions ease, targeting study completion in Q3 2020.

Lithium Consolidated (ASX: LI3)

Lithium Consolidated has identified a 5km by 2km gold anomaly at the Warriedar West zone of its Warriedar project in WA’s Murchison district.

The anomaly is located adjacent to gold mineralisation and artisanal working, and firms up Lithium Consolidated’s theory a large-scale mineralised system may be present.

To obtain further insight into the mineralisation, Lithium Consolidated carried out a reconnaissance and geological mapping program which involved collecting 232 samples.

With exploration temporarily suspended for April due to COVID-19, Lithium Consolidated plans to undertake further sampling of Warriedar West to establish drill targets.

King River Resources (ASX: KRR)

Multi-commodity explorer King River has generated its first 4N high purity alumina from its Speewah specialty metals project.

Located in WA’s Kimberley region, King River has been investigating production of vanadium pentoxide, titanium dioxide and iron oxide products from Speewah.

However, it has also identified the potential of generating other high-value specialty commodities including HPA, magnesium oxide and vanadyl sulphate.

TSW Analytical has been undertaking testwork on Speewah ore to produce a 99.99% HPA product using a two-stage process involving sulphuric acid leaching.

King River has planned further testwork and analysis to improve the stage two purification efficiency.

Noxopharm (ASX: NOX)

Pharmaceutical company Noxopharm has sought approval to begin a clinical trial using its Veyonda anti-cancer drug in COVID-19 patients to prevent the virus’ progression.

Noxopharm’s theory is the drug’s active ingredient idronoxil could block inflammation which is responsible for the deaths in severely affected COVID-19 sufferers.

Idronoxil inhibits sphingosine-1-phosphate (S1P) and STING (stimulator of interferon genes) signalling pathways, which is thought to contribute to the self-destruction of major organs in COVID-19 fatalities.

“With the emerging possibility that an abnormally high STING response is a factor in COVID-19 death, having an inhibitor of STING signalling ready to be tested in [these] patients is a considerable responsibility,” Noxopharm chief executive officer Graham Kelly said.

“Proving the value of Veyonda to COVID-19 patients is a humanitarian and regulatory approval opportunity that we cannot overlook,” he added.

Noxopharm followed up its Veyonda news with that of a possible new brain cancer treatment in its drug pipeline.

The company’s isoflavonoid drug candidate has passed the proof-of-principle testing program in laboratories studies.

Osteopore (ASX: OSX)

Bone healing technology company Osteopore achieved a significant milestone this week after securing Australian Therapeutic Goods Approval for three of its craniofacial products – Osteomesh, Osteoplug and Osteoplug-C.

This adds to Osteopore’s existing medical approvals including US FDA, European CE Mark and regulatory bodies in Singapore and east Asia.

Osteopore’s products are 3D printed medical scaffolds, which have been successfully tested in Australia under its Special Access Scheme.

The company said securing TGA approval paves the way for it to make its products commercially available to doctors and hospitals across Australia.

As part of this, Osteopore noted it would continue discussions with potential distribution partners.

Jupiter Energy (ASX: JPR)

Oil and gas junior Jupiter Energy has left investors and regulators alike scratching their heads after its share price rocketed a whopping 17,150% this week on no news.

The soaring share price prompted an ASX speeding ticket on Wednesday, but the company’s response left no clearer reason for the rise other than pointing to two recent operational updates made in late March and mid-April.

This didn’t dampen the ongoing increase, with Jupiter’s share price hitting an intraday high of $0.35 by Thursday – up 17,150% compared to Tuesday’s closing price of $0.002.

In its response to the second ASX price query on Friday, the company said it would remain in a trading halt while it works with the relevant parties to better understand what has led to the irregular and abnormal trading of its shares.

Jupiter again stated it was “not aware” of any reason for the recent trading pattern of its securities.

VIP Gloves (ASX: VIP)

Following Malaysian Government confirmation its medical grade glove manufacturing plant falls into the essential category, VIP Gloves said manufacturing of its medical gloves would be continuing around the clock seven days a week.

The company produces regulatory compliant nitrile rubber gloves for medical, health, dental and other commercial sectors.

As part of the COVID-19 induced need, VIP said its order book for the gloves was fully committed until the end of the year.

The orders represent the production of about 100 40-foot shipping containers of gloves, with each container holding up to 4 million gloves.

ASX floats this week

Small Caps readers who want to view upcoming IPOs or see the performance of stocks that have listed in 2020 can now do so.

The latest company to make its way onto the ASX this week was:

AML3D IPO first week 2020

AML3D (ASX: AL3)

AML3D is another company that has managed to continue with its IPO plans despite the impact of COVID-19 across most sectors.

Focussed on wire arc additive manufacturing using its proprietary WAM 3D printing process, AML3D’s shares began being traded on the ASX on Monday.

The company raised $9 million in an oversubscribed IPO via the issue of 45 million shares at $0.20.

AML3D has combined its 3D printing process and advanced robotics with a proprietary software WAMSoft to make its 3D printing process is fully automated and customisable.

On Friday, AML3D reported third party independent testing of its WAM printed high strength steel components had revealed its products had a 10% higher ultimate tensile strength than the same components made via traditional forging methods.

AML3D closed out its first week at $0.17 after regaining some ground following its positive testing news.

The week ahead

One of the more interesting prospects for Australians is that inflation could turn negative – that is, prices of goods and services will actually fall and we will enter a period of deflation.

Reserve Bank Governor Dr Philip Lowe is one who expects deflation and in the past week he pointed to that, saying: “In terms of inflation, we are also expecting a significant decline in the June quarter.’’

“The large fall in oil prices, combined with the introduction of free childcare and the deferral or reduction in some price increases mean that it is quite likely that year-ended headline inflation will turn negative in June,” Dr Lowe said.

Deflation expected, but for how long?

“If so, this would be the first time since the early 1960s that the price level has fallen over a full year. In underlying terms, however, inflation is expected to remain positive.”

There will be an early test of that prediction this week with March quarter inflation data out on Wednesday, with a protracted period of deflation associated with a depression rather than a recession.

The March result is likely to be moderate rather than negative but if it is very low it could point to a significant negative result in June.

The key thing to note will be whether underlying inflation – in this case stripping out the plunging petrol price – is stronger or weaker than expected.

The rash of panic buying may have kept prices a bit higher than usual which may act as a bit of a counter-balance to falling fuel costs so this really will be a key inflation release.

On the other hand, price rises may have been restrained by the large number of Australians who have been forced to slash their spending during the pandemic after losing their jobs or income.

Pandemic impact will be vital

Other than inflation, most interest will be in seeing how the COVID-19 pandemic has been hitting companies and economies everywhere.

Here in Australia that will be illustrated by consumer sentiment numbers, export and import prices, the CoreLogic Home Value Index for April and numbers on manufacturing and producer price indices.

Internationally, there are a range of things to watch for including Chinese industrial profits, the US Federal Reserve interest rate decision, US GDP, US home prices and construction spending.

This week’s top stocks