Weekly review: Australian share market corrects as coronavirus worries prove contagious

ASX stock market crash Australia coronavirus
WEEKLY MARKET REPORT

WHACK! – that was a week of share market falls to remember as the old saying of markets going up the stairs and down the elevator was once again proved true.

As the coronavirus Covid-19 extended its tentacles across the world including Europe and the Middle East, there was no vaccine available for the Australian share market which plunged repeatedly on each day of bad news.

By the end of the week the Australian market had corrected by falling more than 10.5% from its peak set just last week and on Friday suffered the largest daily fall in more than four years with a bruising 216.7 point or 3.3% drop to 6441.2 points.

Big falls felt across the board with no sector spared

In the last five trading days alone the ASX 200 index was down an amazing 9.7% which is the biggest decline since the GFC way back October 2008, with almost $210 billion in value disappearing.

No sector was spared as panic selling was met with little in the way of buying support and even the biggest blue chips were slammed and technology stocks were really hit hard.

The big miners dragged the materials sector 4.7% lower with BHP (ASX: BHP) losing 4.5% to close at a 13-month low of $33.60 while fellow major miner Rio Tinto (ASX: RIO) down by 3.5% to $87.27.

There was no safety in the banking sector either with all of the big four banks down heavily as the sector lost 3.1%, led by a 3.1% fall in Commonwealth Bank (ASX: CBA) and a 3.3% drop in Macquarie Group (ASX: MGL) shares.

Tech companies smashed

Some of the more spectacular daily falls on Friday included software company WiseTech (ASX: WTC) which lost 10.8% to $15.10 and buy now, pay later provider Afterpay (ASX: APT), which lost 9.1% to $33.17.

Not even telco Telstra (ASX: TLS) was immune from the falls although it was the best performer of the top 20 stocks, declining 0.3% to $3.43 while blood products and biotechnology stock CSL (ASX: CSL) is still just clinging the its perch above $300 a share after falling 2.5% to $309.44.

Virus spread beyond China spooking markets

The relentless spread of Covid-19 has really spooked investors who are worried that there could be worldwide downgrades of company earnings and economic growth and potentially a very length period of recovery.

In that situation, they are seeking the safety of cash until there is much more certainty about the effect of the virus on the economy and companies which could take months and possibly even years.

The usual stimulus of interest rate cuts by central banks which pushed the market to record highs is unlikely to have much effect amid such a panic, although there will be a particular focus on the Reserve Bank board’s interest rate decision on this coming Tuesday.

Will the RBA make a surprise move on Tuesday?

Although most economists are tipping that the RBA will leave official rates alone at the current low rate of 0.75% and look more closely at a change in April, there are some catalysts including the coronavirus which could prompt a change.

There was also the unwelcome lift in the unemployment rate to 5.3% in January which showed that the economy was struggling even before the effect of the virus

The RBA also tipped the summer bushfires to cut growth by 0.2% in the December and March quarters, while the virus could have an even more significant effect as businesses cope with interrupted supplies from China and airlines, tourism businesses and education facilities all feel significant pain due to the sudden forced downturn in travel.

Construction, bushfires and virus all impact on growth

Construction figures were also soft before the coronavirus with completed construction work in the December quarter falling by 3%.

In these circumstances it would not be a total shock if the RBA surprised the market with an early rate cut, although it still remains a long shot and would be unlikely to have much of an impact on the share market, which remains totally focused on the coronavirus fall-out.

Small cap stock action

The Small Ords index was smashed down 10.98% to close the week on 2728.2 points.

ASX 200 coronavirus Small Ords chart February 2020
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Zoono (ASX: ZNO) and Eagle Health Holdings (ASX: EHH)

The results are finally in and Zoono’s expectations have been proven correct with its surface sanitiser officially found to be 99.99% effective against the coronavirus – COVID-19.

Laboratory testing on Zoono’s Z-71 Microbe Shield surface sanitiser has demonstrated it is affective against the virus for up to 30 days on surfaces and 24 hours on hands.

Zoono said the results vindicated its belief its products and technology can become part of the solution against the spread of COVID-19 and other viruses.

The positive test results were followed up with Eagle Health confirming the previously announced co-branding and distribution agreement with Zoono.

Under the deal, Eagle will arrange for bulk imports of Zoono’s sanitising products to its pharmaceutical facility in Xiamen, China.

Eagle will then distribute the products into more than 300 stores throughout China under its own brand, but with the products containing “powered by Zoono”.

Additionally, a further 271 distribution partners will place the Eagle/Zoono products into about 30,000 outlets across the country.

Zoono exported its first batch of product by air to Eagle’s China facility on Friday.

Davenport Resources (ASX: DAV)

Potash explorer Davenport Resources revealed positive results for a preliminary technical and economic study on its Nohra-Elende project in Germany.

The study was underpinned by Nohra-Elende’s inferred resource of 1.7Bt at 9.7% potassium oxide.

Initial estimates include a possible 34-year mine life with annual production of 575,000t of MOP (muriate of potash), 640,000t of Kieserite monohydrate (a high-value magnesium sulphate used in specialty fertilisers) and 1.28Mt of industrial-grade sodium chloride.

Capital and operating expenditures were anticipated to be low compared to similar operations, while current and forecast potash and fertiliser prices indicate the project is economically viable.

Davenport has a further three potential advanced standalone potash projects in the region, which have the advantage of proximity to infrastructure and being on Europe’s doorstep.

Beam Communications (ASX: BCC)

Beam Communications’ ZOLEO satellite communications product will now be sold via LiTMUS LAB at Myer’s flagship stores in Sydney, Melbourne and Brisbane.

The satellite messaging device will also be sold through Myer’s online site.

In-store LiTMUS LAB will enable consumers to experience Beam’s ZOLEO personally under its shop-in-shop concept that showcases technology products for consumers.

LiTMUS LAB stores are located in Myer Chadstone and Myer Sydney and the specialist retailer has an audience of more than 2 million shoppers a month.

Commenting on the ZOLEO satellite device, LiTMUS LAB chief executive officer Ashley Heath said the unit would “resonate” with consumers who want to be in constant contact with friends and family no matter where they are in Australia or the world.

“ZOLEO is the only satellite product we have seen that we believe has mainstream appeal, and we are excited to have the opportunity to showcase this portable messaging device at our stores,” he added.

The product will also be available on Amazon.com and eBay in the final quarter of this financial year.

Titomic (ASX: TTT)

Additive manufacturing company Titomic this week secured a $25.5 million sales contract with a division of a global defence product manufacturer.

The contract was with Composite Technology and is anticipated to generate $25.5 million in revenue by Titiomic providing two Titomic Kinetic Fusion (TKF) systems for industrial scale metal additive manufacturing.

The deal comes after two years of research and prototyping to guarantee Titomic’s technology meets quality assurance requirements.

Composite will integrate Titomic’s TKF systems into its current manufacturing process to enable more effective, efficient and sustainable manufacturing solutions.

Its also expected the integrated processes will boost production of defence related products and components to further enhance revenue for both parties.

Titomic is also cashed-up to advance its growth strategies after making a $19 million placement to institutional and international long-term investors.

Galan Lithium (ASX: GLN)

South American lithium brine explorer Galan Lithium has expanded its landholding in Argentina’s Hombre Muerto salar with an agreement to purchase TSXV-listed Portofino Resources’ Del Condor and Pucara claims in the area.

Galan will secure 100% of the assets, which abut its Hombre Muerto West tenements, for US$100,000 in cash and 650,000 shares.

Portofino has completed surface sampling across 18 sites at Del Condor and Pucara, which returned up to 1,031mg/l lithium.

The new tenements are in proximity to the high grade discoveries at Galan’s Pata Pila and Rana de Sal claims, where numerous wide lithium brine intersections exceeding 900 milligrams per litre lithium have been uncovered.

“This strategic project acquisition by Galan consolidates its Hombre Muerto West project with a continuous line of concessions of about 14km from Catalina to Pata Pila,” Galan managing director Juan Pablo Vargas de la Vega said.

He added it would give Galan an opportunity to quickly build additional scale to its already “significant brine resource and tenure” in the area.

De Grey Mining (ASX: DEG)

Gold explorer De Grey Mining rocketed again this week on news its had identified a major extension of sulphide mineralisation to its recent Hemi gold discovery.

Drilling into the Section B zone at Hemi has delineated a sulphide zone that is over 160m wide and 120m deep.

It was identified beneath the known shallow gold mineralisation.

Recent assays from Hemi have included 46m at 6.6g/t gold at Section A and 24m at 4.2g/t gold at Section B.

In this week’s announcement, most of the sulphide was found at Section B including a 97m interval of sulphide and 45m of sulphide.

De Grey technical director Andy Beckwith said the sulphide zones beneath the high-grade gold were “very encouraging” with the large zones on Section B potentially increasing Hemi’s scale.

Antipa Minerals (ASX: AZY)

Antipa Minerals has teamed up with one of the world’s largest gold miners Newcrest regarding 2,180sq km of its tenements in WA’s Paterson Province.

Newcrest can earn up to 75% of the tenements, now known as the Wilki project, by spending $60 million on exploration over eight years.

Additionally, Newcrest has agreed to subscribe for $3.9 million of Antipa shares at $0.017 each, which will give it an almost 10% holding in the company and the right to appoint a director to its board.

The joint venture follows a similar one with Rio Tinto, which is earning a 65% interest in the 1,300sq km Citadel project by spending $14 million over the next five years. Rio recently secured a 51% stake in the asset.

Antipa plans to use the Newcrest placement funds to advance its own 1,700sq km of ground in the region.

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:

Kaiser Reef (ASX: KAU)

Kaiser Reef is the latest gold explorer to hit the ASX after it raised $4.5 million in its IPO to advance the flagship Stuart Town gold project in NSW.

The company issued 22.5 million shares at $0.20, with $2.5 million of the funds raised allocated to two years of exploration at the gold project.

Although limited modern exploration has been undertaken at Stuart Town, it hosts numerous historic workings and was mined between 1851 and the early 1900s.

Records only exist from 1875 onwards, which indicate about 170,000oz of gold was produced with

On its first day of trade, Kaiser reached an intraday high of $0.26 – a 30% premium to its offer price. By Friday close, Kaiser was trading at $0.25 – up 25%.

The week ahead

Other than Tuesday’s RBA decision, there are a host of statistical releases due this week, starting with the December quarter business indicators from the Australian Bureau of Statistics on Monday.

Monday is also when the AiGroup and CommBank release manufacturing activity surveys, ANZ will release job advertisements data, the Melbourne Institute announces its inflation gauge and CoreLogic publishes the February results for home prices.

Consumer confidence numbers from ANZ and Roy Morgan are out on Tuesday and there are ABS quarterly data on government spending and the Balance of Payments and building approvals.

On Wednesday, the ABS releases the National Accounts which include the economic (GDP) growth for the December quarter while the Federal Chamber of Automotive Industries issues the February new vehicle sales.

On Thursday, the ABS releases international trade data for January and on Friday the retail trade figures should show the impact of bushfires and smoke haze on consumer spending.

Overseas the main things to watch out for are Chinese international trade and US jobs data but the real news for markets will centre around the continuing spread of the coronavirus.

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