Weekly review: Australian market clings on to being stronger in May
WEEKLY MARKET REPORT
Australia has managed to cling to a gain in May, which puts it well ahead of most world share markets which showed hefty losses.
On the last trading day of the month the ASX 200 managed to add 4.8 points to 6396.9 points, which put it up around 1% for the month.
The strong post-election market bounce may have largely dissipated in the later stages of the week but Australia managed to resist the doom and gloom that hit most offshore markets hard.
Offshore markets slide
They were sent sliding by a renewed decline in US long term interest rates which scared off investors who believe a US yield curve inversion is a strong signal of a coming recession.
Markets also continued to be spooked by the US-China trade war, which has shown no sign of dissipating as President Trump decided to put a surprise tariff on Mexico.
During May the US market slumped by 5.5%, Japan was also down by 5.5% while Hong Kong (down 8%) and France (down 6.5%) were also disappointing.
Local market movers
There were some interesting movers on the Australian market with energy stocks some of the worst performers on the back of a further slide in the oil price, which has now fallen 11% in May.
Woodside (ASX: WPL), Santos (ASX: STO), Oil Search (ASX: OSH) and Origin (ASX: ORG) all fell by as much as 2.1%.
Investors in Crown Resorts (ASX: CWN) were also concerned after major shareholder James Packer’s Consolidated Holdings sold a 19.99% stake in the Australian casino operator for $1.76 billion.
While Consolidated is retaining a 26% stake in the group, Crown shares still fell 3% on the news.
On a small scale, two directors in Xero (ASX: XRO) have sold a combined $160 million worth of shares over the past two weeks.
Shares in almond producer Select Harvests (ASX: SHV) jumped an impressive 9.8% on the back of a half-year profit that almost doubled $20 million, despite rapidly rising water charges.
Australia’s biggest rare earth miner Lynas Corporation (ASX: LYC) added another 11.3% on Friday, bringing its rise for the week to more than 25% after China responded to US trade threats by proposing an embargo on rare earth sales to the US.
Rare earths are widely used in US defence, automotive and technology products and China is the world’s dominant producer.
Small cap stock action
The Small Ords index finished the week down 1% to 2,816.7 points and down 1.34% for the month of May.
ASX 200 vs Small Ords
Among the companies making headlines this week were:
Keytone Dairy Corporation (ASX: KTD)
Keytone Dairy Corporation will supply a range of milk powders to Walmart’s chain of Sam’s Club outlets in China.
The agreement was made between Walmart (China) Investment Co and Keytone and is a major milestone for Keytone. The terms are indefinite and manufacturing volumes will be determined on an ongoing basis.
Sam’s Club is a wholly-owned subsidiary of Walmart Inc, which is the world’s largest retailer with more than 800 high-end retail warehouses globally.
In China, Walmart has 18 stores and plans to open a further 40 before the end of the year.
BMG Resources (ASX: BMG)
BMG Resources’ joint venture over three lithium brine assets in Chile was formalised this week, paving the way for the company to get on the ground drilling.
The joint venture includes three claims in the Salar de Atacama, Salar de Pajonales and Salar de Tuyajto – Natalie and encompasses 20,000 hectares.
BMG is earning a 50% stake in the assets and plans to establish JORC resources within the next 12 months.
The company will be targeting Salar de Atacama first where geophysical surveys have identified anomalies for drilling.
Invigor Group (ASX: IVO)
As part of its strategy to strengthen its e-commerce operations in Asia, Invigor Group will acquire Sun Asia Group for $2 million.
Sun Asia has an order book potentially worth $30 million to supply Australia farm produce to Asian markets.
Invigor followed up the Sun Asia acquisition news with an announcement stating its WeChat Pay partner Winning Group has inked a memorandum of understanding to secure a 10% shareholding in Invigor.
Winning will subscribe for 375 million shares at $0.004 each to raise $1.5 million. Funds will be used to expand WeChat Pay into Singapore and other Asian markets.
Patrys (ASX: PAB)
Patrys’ lead candidate drug PAT-DX1 has suppressed the growth of secondary brain tumours in a triple negative breast cancer pre-clinical study.
The results were from a pre-clinical study at Yale’s School of Medicine and showed that a reduced and shortened dosing regimen with the drug candidate the triple negative breast cancer brain metastases were “significantly suppressed” after just one week of treatment.
Patrys anticipates a combination of its lead candidate and radiation treatment could result in “significantly greater” tumour suppression than either treatment on its own.
Patrys will undertake further pre-clinical studies evaluating different PAT-DX1 doses and radiation to underpin clinical trials.
Oliver’s Real Food (ASX: OLI)
Oliver’s Real Food has revealed improved earnings guidance, in what the board considers a “remarkable turnaround”.
After downgrading its profit guidance for the 2019 financial year, Oliver’s has made changes to get the company back on track.
For the 2019 financial year, Oliver’s expects a $5.3 million loss, but anticipates a return to profitability for the 2020 financial year.
“We want to return to a position where we’re seeing our same store sales growth continue to grow at 5-7% as it always had, and really get back to focusing on delivering a great experience for our customers,” Oliver’s founder and re-appointed chief executive officer Jason Gunn told Small Caps.
Kleos Space (ASX: KSS)
Kleos Space plans to launch its Scouting Mission in August this year, with the mission to comprise four GomSpace manufactured nano-satellites.
The Scouting Mission will form the foundation of a satellite constellation, which aims to deliver a global picture of hidden maritime activity for government and commercial entities.
Kleos’ intelligence will produce georeferenced RF data, maritime pattern, anomaly and comparator information for defence and other sectors.
The company’s chief executive officer Andrew Bowyer said the company will continue to optimise its technology after the launch to ensure revenue generating data starts flowing as quickly as possible.
Lake Resources (ASX: LKE)
Lithium brine explorer Lake Resources’ Cauchari project is proving a boon for the company, with Lake reporting high flow rates of conductive brines on Friday after revealing up to 480 milligrams per litre lithium in samples taken from a 186m depth earlier in the week.
The latest high flow rates were from a 261m intercept, with Lake anticipating the lithium levels will be greater than the previously reported 480mg/l.
“High fluid flows of brines under pressure is exactly what any operator would want to see when drilling a lithium brine filled basin,” Lake managing director Steve Promnitz said.
“Recent lithium results confirm the potential for our Cauchari project to replicate the success of similar projects, and vindicate our long held view that the basin is fault-bounded and extends beneath thick alluvial cover,” he added.
PainChek (ASX: PCK)
PainChek has expanded into international markets under a new deal with UK-based Person Centred Software.
The PainChek app has been integrated into Person’s Mobile Care Monitoring system to provide carers with seamless pain assessment and monitoring of residents in aged care facilities.
Person’s UK client base comprises more than 1,200 aged care providers and more than 40,000 residents, with revenue to be in line with that generated in Australia and dependent on uptake of the app.
With PainChek already possessing CE Mark clearance, the company will establish a UK operation to target European markets.
Meteoric Resources (ASX: MEI)
Meteoric Resources has completed the acquisition of Juruena and Novo Astro gold projects in Brazil, paving the way for exploration to begin.
“The formal completion of the acquisition of Juruena and Novo Astro market the commencement of the next exciting stage of development for Meteoric as we move to commence exploration,” Meteoric managing director Dr Andrew Tunks said.
Initially, exploration will focus on the Dona Maria and Querosene deposits at Juruena where up to 1,992g/t gold was unearthed during previous drilling.
The high-grade deposits have a combined resource of 436,000t at 14.7g/t gold for 205,000oz.
ASX floats this week
Small Caps readers who want to view upcoming IPOs or see the performance of stocks that have listed in 2019 can now do so.
The latest company to make its way onto the ASX this week was:
Investec Australia Property Fund (ASX: IAP)
Investec Australia launched on the ASX after raising more than $101 million via the issue of almost 77 million shares at $1.32 each.
The company was incorporated to invest in office, industrial and real estate assets across Australia and New Zealand.
Since listing on the JSE in 2013, Investec has grown its property portfolio value by almost 8 times.
Investec closed its first week on the ASX at $1.38 – up 2.2% on its IPO price.
The week ahead
The coming week is extraordinarily data rich with a forest of statistics arriving both locally and from overseas, with the biggest news of all being the Reserve Bank board’s meeting on Tuesday when official interest rates are widely predicted to be cut.
Locally the Australian Bureau of Statistics (ABS) is releasing its Business Indicators on Monday which includes figures on profits, sales, wages and stocks.
There are also manufacturing surveys from AiGroup and CBA while CoreLogic will have some interesting data on house prices in May.
It will be a total shock to markets if Tuesday’s Reserve Bank board meeting does not cut official interest rates by 0.25% to a record low of 1.25% following low inflation results and some emerging weakness in the employment data.
Other releases to look out for in the week include ANZ job ads, the Melbourne Institute inflation gauge, the quarterly balance of payments figures, government finance, retail trade, consumer sentiment, the March quarter economic growth (GDP) estimates, new car sales, international trade, and new lending numbers.
Overseas there is also plenty to look out for including US jobs data and the Beige Book which is a survey of economic conditions across the US.
The major thing to watch out for here is any emerging weakness in the US economy which could be a precursor to the US once again cutting official interest rates.
Then of course there is the continuing trade debate between the US and China which will be watched very closely indeed.