Weekly review: new financial year brings relief from extreme volatility

2020 2021 financial year extreme volatility ASX Australia stock market 2019

The Australian share market has enjoyed a solid start to the new financial year, rising by 0.4% on Friday and 2.6% for the week as telco and health stocks gained ground.

The benchmark ASX 200 finished 25.2 points ahead at 6057.9 points to make it four straight sessions of gains.

With the US market closed for Independence Day, the real action will probably start next week, although a bullish first couple of days to start the new financial year is probably a welcome sign.

Investors hoping for more stability

All investors will be hoping 2020/21 is a little less eventful than its predecessor which was one of the most volatile and unpredictable on record.

The tale of the tape shows that it was overall a bad year for the Aussie share market, with the ASX 200 down by 11% – the worst performance since the 24% fall for the GFC in 2008-09 when the market fell 24%.

Still, that number is nothing compared to the incredible volatility that characterised the year – which arguably ended on a reasonably high note as investors bet that the worst of the COVID-19 economic shutdowns are now behind us and things can only improve.

Incredible bull run comes to an abrupt end

It is difficult to believe now but when Australia was recording its first COVID-19 case back in January 25, the share market was surging upwards as though there was no tomorrow.

Indeed, the market kept climbing through the early stages of the pandemic, reaching an intraday high of 7,197 points on February 20.

That effectively marked the end of a strong and long bull market but it was followed by a particularly rapid and nasty bear market which saw the market plummet by an astonishing 39% to a sickly 4403 points on March 23.

Fast and nasty bear market followed by more bulls

Then, just as fast as the bear market had slashed values we were in a brand new bull market, as massive domestic and global stimulus packages and hopes of getting on top of the virus, finding a vaccine and launching into a rapid economic recovery overcame fears of rapidly worsening unemployment and the first recession for almost 30 years.

Not even a deteriorating Budget position and an almost total shutdown of international travel were enough to end the optimism, although the Australian market still remains 17% behind the heady February record.

Australia’s market has also been dragged upwards by the US market, with Wall Street pushing the S&P 500 index up by an amazing 47% from its late March lows and the tech-heavy Nasdaq setting fresh records.

On Friday the Australian market rallied by 1.1% but with no Wall Street trading to look forward to due to the Independence Day holiday, it wilted a little from there in very thin trade to end up 25 points.

Healthcare was a standout performer with consumer staples and communications also making significant moves higher.

Blood product giant CSL (ASX: CSL) was up an impressive 2.7% or $7.74 a share to $297.46 while another impressive performer was Telstra (ASX: TLS)  which rose 4% or 13c to $3.36.

Brokers have been impressed by Telstra’s actions in improving returns on mobile phone plans.

Retail dominated Wesfarmers (ASX: WES) also rose 1.6% on news that retail sales for May rebounded by 16.9% after COVID-19 shutdowns eased.

Individual company news also played a big role with hearing products company Cochlear (ASX: COH) one of the biggest improvers with a $11.31 or 5.9% lift to $204.00 after the US Food and Drug Administration approved four new hearing solution products which should now be released in North America and Western in coming months.

Heading in the other direction was Adbri (ASX: ABC) – which used to be known as Adelaide Brighton – with shares sliding 25.4% or 80c to $2.35 after subsidiary Cockburn Cement lost a lucrative lime supply contract with Alcoa which will now end in June next year.

That contract was worth around $70 million in annual revenue.

Small cap stock action

The Small Ords index climbed 1.79% this week to close on 2661.6 points.

ASX 200 XJO Small ords chart July 2020
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

BPH Energy (ASX: BPH)

It was a big week for BPH Energy, which revealed on Friday its investee Cortical Dynamics had applied for an international patent under the designation of “apparatus and process for measuring brain activity” for its Brain Anaesthesia Response monitor (BARM) technology.

The 16%-owned investee already has 22 granted patents across five different families.

This latest patent application is expected to further protect the company’s intellectual property as it undergoes commercialisation of BARM.

BARM is believed to improve on existing EEG technologies and exhibits sensitivity to a range of sedative and anaesthetic agents which most other depth of anaesthesia monitors can’t detect.

BPH’s other investee 23%-owned Advent Energy has reviewed years of work in the PEP 11 oil and gas field in the offshore Sydney Basin. The review identified structural leads that could contain 1 trillion cubic feet of gas.

Advent holds an 85% interest in PEP 11, which covers 4,576sq km and is adjacent to Australia’s largest domestic gas market.

Etherstack (ASX: ESK)

Etherstack and Samsung Electronics have teamed up to deliver mission critical push-to-talk (MCPTT) technology over long-term evolution (LTE) solutions to telecommunications carriers and governments worldwide.

Under the two-year agreement, Etherstack will provide its digital land mobile radio (LMR) soft-switching technology for embedding in Samsung’s advanced mobile network solutions.

The deal is expected to deliver next generation communications to first responders such as police, fire and ambulance officers.

Demand for MCPTT services and equipment has been steadily growing and is expected to surge over the coming years.

Blackstone Minerals (ASX: BSX)

Vietnamese nickel explorer Blackstone Minerals’ Ban Chang prospect is looking even more promising after the company reported more high-grade nickel and copper hits.

Assays revealed 9.8m at 1.45% nickel, 0.9% copper, 0.08% cobalt and 0.70g/t PGE from 57.05m, including 5.7m at 2.07% nickel, 1.08% copper, 0.12% cobalt and 0.95g/t PGE; and 1.85m at 3.59% nickel, 1.18% copper, 0.20% cobalt and 1.97g/t PGE.

Results are pending for a further two holes at Ban Chang which intersected 1.2m of massive sulphide veins and 15.4m of sulphide vein mineralisation respectively.

Blackstone managing director Scott Williamson said the latest assays underpin Ban Chang’s potential for bulk underground mining.

“With bulk underground mining and the potential for significant PGE credits, we could be looking at a very economic mining scenario at Ban Chang,” he added.

Ban Chang is the first of 25 targets to be tested throughout the wider Ta Khoa project in northern Vietnam.

Osteopore (ASX: OSX)

Bone healing bio-resorbable scaffold company Osteopore has secured a distribution agreement with Bioplate Inc, paving the way for Bioplate to promote and sell Osteopore’s 3D printed craniofacial scaffolds throughout the US.

Cranial bone fixation specialist Bioplate has agreed to market Osteopore’s products through its existing US sales network of health professionals, hospitals and health services.

Osteopore chief executive officer Khoon Seng Goh said penetrating the US market was a major milestone for the company and represented a large opportunity.

The distribution agreement is non-exclusive and for an initial two-year term.

Mr Goh said Osteopore would continue to focus on securing other partners to distribute its products and increase its penetration in other US regions.

Osteopore 3D prints micro-structured scaffolds for bone regeneration using bio-resorbable material.

The scaffolds dissolve and leave behind natural, healthy regenerated bone tissue – significantly reducing post-surgery complications associated with bone implants.

Incannex Healthcare (ASX: IHL)

Formerly Impression Healthcare, Incannex Healthcare has declared a “record” June quarter based on preliminary performance figures, with the company anticipating the sales momentum will continue into the September period.

The company heralded July with the name change to Incannex, which it claims better reflects it becoming a “pure play” biotech company and its activities including developing unique medicinal cannabis products and research into using these to treat OSA, traumatic brain injury, acute respiratory distress syndrome (ARDS) and temporomandibular joint disorder.

Incannex’s fastest selling product during the June quarter was its Cannagesia CBD oil tinctures.

The company expects this sales momentum will be retained after it received 2,500 more CBD oil tinctures earlier this week.

Incannex’s CBD products are currently distributed via Australia’s largest network of cannabis medicine prescribers Cannvalate.

“After sourcing a great range of medicinal cannabis manufacturers, we have been unrelenting in our efforts to grow cash sales of the Incannex range of products,” Incannex managing director and chief executive officer Joel Latham said.

“I am delighted to report that the company has achieved its greatest quarter of cash sales receipts, being a 97% increase over the previous corresponding June 2019 quarter,” he added.

dorsaVi (ASX: DVL)

Junior wearable sensor technology company dorsaVi secured a deal with the country’s second largest global insurer QBE Insurance.

The deal paves the way for QBE’s customers to use dorsaVi’s wearable sensor technology and gain access to its data insights.

dorsaVi’s sensor ViSafe and myViSafe technology will be used in real-time and in work environment to monitor movement and muscle activity to gauge movement risk and guide risk mitigating strategies.

The goal is for insurers to use the technology to manage risk and ultimately ensure claim volumes are far lower than paid premiums.

“Over the past two years, we’ve been increasingly looking at ways we can reduce the risk of injury for workers,” QBE’s general manager of people and risk Rob Kosova said.

“New technologies offer great promise for taking a proactive role in making workplaces safer and we’re excited to be working with dorsaVi’s technology to achieve this,” he added.

Wide Open Agriculture (ASX: WOA)

Regenerative farming and food product distributor Wide Open Agriculture has joined forces with Australia’s CBH Group to produce carbon-neutral grain for global exports.

Wide Open Agriculture is focused on delivering its regenerative and sustainably produced products to conscious consumers in Australia and South East Asia, with WA customers currently able to source food products via the company’s Dirty Clean Food brand.

The non-binding memorandum of understanding with CBH will comprise both companies exploring the viability of sourcing, certifying, marketing and distributing carbon-neutral oats, barley, and lupins from WA.

As part of the project, the duo will work with five leading WA grain growers to facilitate the development of commercial quantities of oats, barley and lupins that meet carbon-neutral specifications.

If the companies are successful, it could lead to what duo claims will be one of the world’s first carbon-neutral certified grains.

Wide Open Agriculture managing director Dr Ben Cole said the company plans to transition to carbon-neutral certification across all its products.

“Developing grain products with a clear understanding of their environmental impact from farm-to-customer could provide new market access and potential premiums for growers,” he added.

Credit Intelligence (ASX: CI1)

Credit Intelligence has boosted its presence in Australia after completing its 60% acquisition of Sydney based Chapter Two Holdings with a $400,000 cash payment.

This will be followed by an additional $320,000 in Credit Intelligence shares over three years, based on Chapter Two achieving an annual profit guarantee of $300,000.

The Sydney-based firm provides informal debt negotiation and mortgage broking services to people experiencing financial hardship.

Its alternative debt solutions are believed especially relevant during uncertain economic times, when there is a higher need for options to avoid bankruptcy.

Credit Intelligence has also appointed Novus Capital to act as its corporate and financial advisor and assist with identifying other Australian debt management businesses.

Neurotech (ASX: NTI)

Developer of the Mente device for autism sufferers Neurotech has locked-in an exclusive global licence to use Dolce Cann Global’s proprietary cannabis strains to assist with treating autism, epilepsy and ADHD.

Dolce has developed proprietary cannabis genetics from 13 rare chemovars and recent profiling of leaf cuttings from 650 of its seedlings identified high levels of cannabinoids CBG, CBC, CBN and CBDV, which are have shown to have potential in treating neurological disorders.

Additionally, on average Dolce’s cannabis strains have low levels of THC (less than 0.3%) which is the psychoactive component in cannabis.

This gives Neurotech the option to evaluate the strains in children without potential psychoactive side effects.

“With more evidence pointing to the potential for certain cannabinoids to help treat neurological disorders it makes sense for us to explore this possibility through the agreement with leading cannabis genetics breeder Dolce, and we are excited to get started on this research over the coming months,” Neurotech chairman Mark Davies said.

The company is looking to produce new treatment options potentially combining its Mente device with Dolce cannabis strains.

The week ahead

Once again, the Reserve Bank is the one to watch this week with the board meeting on Tuesday.

While there is unlikely to be any change in interest rate settings coming out of the meeting, analysts will still want to hear how the RBA board feels its interesting stimulus program is performing.

Unlike some central banks, the RBA decided to use “yield curve control” rather than other approaches such as buying bonds and mortgages to keep rates down or to use negative interest rates or pump more cash through the banking system.

So the RBA has been targeting a yield cap of 0.25% on bonds with maturities of up to three years and is prepared to buy bonds to keep rates within that ceiling if necessary.

It is a “cheap’’ approach with the RBA not having to expand its balance sheet by buying massive quantities of bonds, with the market simply adjusting by knowing that the RBA target is in place and is prepared to defend its position if required.

The idea is to keep interest rates very low for businesses and households to reduce borrowing costs and it is an approach that is being very closely watched by other central banks around the world.

Other than the RBA Board meeting, it is a fairly quiet week for official releases with domestic information on inflation, services, credit card spending, consumer confidence and lending and offshore US services, consumer credit and producer prices and Chinese consumer prices.

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