WA Index December 2018

Article

WA Index

Issue 181 | December 2018

Welcome to the 181st edition of the Deloitte WA Index, a monthly review of Western Australian stocks and indices.

The market capitalisation of Western Australian listed companies fell by 14.1% to close the month at $154.9bn for November. The significant driver of this decrease was the Wesfarmers demerger of Coles (which is domiciled in Victoria), resulting in the market capitalisation of our largest WA listed entity reducing 32% to close at $35.8bn.

Download the list of WA’s top 100 listed companies, as of 30 November 2018, explore the sections below and if you do not currently receive our WA Index, please register to be added to our distribution list.

Highlights:

If you have any questions in relation to the Deloitte WA Index please contact Dave Andrews.

As of 30 November 2018

Market Rally? – WA Index Christmas cheer this year?

Many Deloitte WA Index readers will be aware of the notion of the ‘Santa Claus Rally’ – a traditionally positive period during the month of December for international share markets (led predominately by the US), particularly over the last two weeks of trading.

In this edition of the Deloitte WA Index, we look at how our local market typically responds and consider whether, in spite of recent global market retractions, Santa will visit us in WA in 2018.

The Australian All Ordinaries Index has a tendency to take its lead from the US markets, and the notion of a Santa Claus Rally during December is no exception. It is no surprise to hear that the Deloitte WA Index traditionally follows this lead.

Looking at the month of December specifically, the Deloitte WA Index has delivered positive market capitalisation growth during the December month every year for the last decade, with the exception of one - 2011.

Interesting however, is that in the lead-up to the December trading month the market performance is mixed. Data from the last 10 years shows irrespective of how markets are performing during the last quarter, investors remain upbeat to the sound of Santa’s sleigh as we approach the end of the year.

The below graphic is a representation of the Deloitte WA Index performance during November and December over the last 10 years (with 30 November indexed to 100).

WA Index - November Performance
Select above image to enhance the Deloitte WA Index - Monthly Performance

It is no great revelation global markets suffered a blemish on a clear record in 2011.

The European sovereign debt crisis and Standard & Poor’s stripping the United States of its AAA credit rating overshadowed the year. Across the world, global indices felt the impact. The FTSE 100 fell 5.6%, the Nikkei lost 17.3%, and the All Ordinaries fell 15.2% that year.

However, despite some of the most tumultuous trading activity in the last decade, December 2011 still managed to deliver some cheer to investors. The S&P 500 closed up 5.7% in the month of December 2011, the FTSE 100 up 4.3% and the Nikkei managed 0.2% growth. Unfortunately for our local market, the All Ordinaries closed December 2011 down 1.8%, which flowed onto the WA Index, meaning Santa skipped us ‘down under’ that year. 

So, can we take anything from what history tells us and should we look forward to a visit from Santa in 2018?

Recent volatility across markets hardly comes as a surprise given a number of significant political issues (such as the US trade situation with China and the Brexit effectuation) are near inflection points, and markets have come off their 2018 highs.

Trade tension between the US and China appears to be creating uncertainty on both sides, with many major economies, including Australia, keeping a close eye on the discussions given significant trade activity implications.

Meanwhile, the UK is deep in the throes of its exit from the EU and whether the exit strategy is a success remains to be seen. We also need not forget what has been happening in our own backyard, with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and heightened regulatory focus across key economic sectors.

Does the accumulation of these global events, given their timing, pose a possible perfect storm akin to that of 2011 that could disorientate Santa and his reindeer again this year? That is difficult to say, however, we cannot ignore the fact that investor confidence appears uneasy.

History shows markets can have an uncanny ability to hold onto optimism as if it represented some sort of sentimental value at this time of year. Positivity is infectious, and it would certainly be encouraging for all to close out the year on an upswing.

If you trust the historical data set, there is a strong likelihood Santa will not disappoint WA Index participants come the market’s close on 31 December 2018. However, there is genuine uncertainty given current market headwinds.

Whatever the outcome for December 2018, from all of the Deloitte WA Index research and writing team, we wish our readers a safe and restful holiday break and look forward to an exciting and successful 2019.

Commodity review

The commodity market experienced mixed price movements in November. This month the WA Index Commodities Review focuses on crude oil, iron ore, palladium, cobalt and nickel.

Key commodities surveyed during November:

  • The crude oil price fell 22% to $58.73/bbl in November, on the back of increased production and lower demand levels. US sanctions on Iranian oil announced to take effect in early November have introduced further uncertainty to oil markets, with the US proclaiming China, Japan and India among others have been made exempt. These sanctions have resulted in a well-supplied crude oil market, which has seen over 20 importing nations reduce their Iranian imports to zero, with aggregate demand decreasing by more than one million barrels of crude per day.
  • Iron ore prices fell across November to close at US$64.90/tonne, down 15%. Attributed to an overall slowdown in economic growth in China, the iron ore price retracted following a stall in the Chinese manufacturing sector ahead of seasonal construction activity. Expanding output and mine expansions in Brazil and India were also key contributors.
  • The palladium price crossed the US$1,200 per ounce mark for the first time as part of its 11% hike to a closing price of US$1,205 per ounce at the close of November. Palladium’s record-breaking month has been attributed to the tightness of physical metal supply, amidst strong support from investors and speculators. Largely used in emissions-reducing auto catalysts for vehicles, palladium prices look set to reap the benefits of strong demand for more efficient catalytic converters, which is anticipated to only increase as a result of the implementation of stringent emission control rules and regulations across the globe.
  • The cobalt price decreased 7.7% to US$55,000 per tonne at the conclusion of the month. Increased supply and uncertainty from The Democratic Republic of Congo has been pinned as the key driver of this movement.
  • Nickel prices have dropped by 4.7% during November to close at US$11,136 per tonne. The nickel price was pulled down by supply concerns and weak demand from China, as illustrated by China’s October scrap metal imports falling to their lowest levels since 2014 on tightened regulations regarding waste imports. Expectations of excess nickel supply hitting the market in the coming year following increased Indonesian production capacity has also caused some degree of uncertainty in the market.

Commodity and Precious Metal Prices
Select above image to enhance the Commodity and Precious Metal Prices

Performance of WA Index and global indices

Performance of WA Index and global indices
Select above image to enhance the Performance of WA Index and global indices

Global indices surveyed showed mixed results during November, with the Nikkei posting the largest growth at 2% to close at 22,351 points.

The U.S S&P 500 followed suit with a 1.8% increase during the month. The increases experienced are largely attributed to renewed hopes late in the month that the US and China would strike a trade deal. This was confirmed in early December with announcement of a 90-day truce agreement between U.S. president Donald Trump and Chinese counterpart, Xi Jinping.

The All Ordinaries index experienced the most significant decrease at 2.8% as weaker commodity prices resulted in stock price declines , whilst the FTSE 100 decreased by 2.1% ahead of the G20 summit, reflecting the cautious nature with which the G20 is being viewed.

WA Index movement

WA Index movement
Select above image to enhance the WA Index movement

Major index players in November:

  • Galaxy Resources Limited’s market capitalisation increased by $208m (23.3%) to close at $1.1bn following positive response to quarterly results and the announcement of the sale of northern tenements at Sal De Vida in Argentina to Posco in late November. The sale involves cash consideration of US$280m.
  • Ausdrill Limited saw an increase in market capitalisation of $77m (8.5%) during November to close at $990m. This follows the completed acquisition of Barminco at the end of October. The acquisition is expected to transform Ausdrill into a lower capital intensity, higher return business, with Barminco seen as being highly complementary to Ausdrill.
  • Mineral Resources Limited experienced strong growth during the month, with market capitalisation increasing by $194m (7.3%) to close at $2.9bn. This follows the execution of an exclusive agreement with Albemarle Corporation in relation to a potential sale of 50% of the Wodgina Lithium Mine. If completed, US lithium giant Albemarle would acquire half of the project for a cash consideration of $1.58bn. In return, Albemarle provides a 50 percent interest in all mineral rights at Wodgina, in exception of iron ore and tantalum. The agreement involves the formation of a 50:50 Joint Venture that will produce spodumene concentrate and lithium hydroxide, and is expected to produce 750,000 tonnes of lithium per annum.

Major index players in October 2018
Select above image to enhance the Major index players in October 2018

Top performers of the month

Western Australian top performers over the past month by growth in market capitalisation

Top performers of the month
Select above image to enhance the Top performers of the month

The top Deloitte WA Index Movers and Shakers in November were as follows:

  • Peel Mining Limited’s market capitalisation soared by $54m (79.8%) to close at $122m following the release of results from the drilling exploration at the Wagga Tank mine in western New South Wales. The announcement details that the results indicate that the location boasts the highest-grade zinc-rich intercept that Peel has reported since its inception, and is emerging as one of the most significant zinc polymetallic discoveries in Australia in recent years.
  • Tawana Resources Limited’s market capitalisation lifted by $35m (25%) during November, to close at $173m. This follows the finalisation of a $40m secured funding package from a consortium of lenders, which will assist to facilitate the proposed merger between Tawana and Singapore based Alliance Minerals, including the listing of Alliance on the ASX.
  • FBR Limited posted a $38m (24%) increase in market capitalisation in November, to close at $200m. This follows the announcement that the Hadrian X robotic bricklaying technology had successfully completed the build of the first full home structure. The Hadrian X built the three bedroom, two bathroom home structure in less than three days, which was a technical milestone that was set for the FBR in 2015. The build represents a world first achievement and an example of the advancements in the robotic home building technology industry.

If you don’t currently receive our WA Index, you can register to be added to our distribution list.

If you have any questions in relation to the Deloitte WA Index please contact Dave Andrews.

Did you find this useful?