Issue 160 | November 2016

Analysis

WA Index

Issue 160 | November 2016

Welcome to the 160th edition of the Deloitte WA Index, a monthly review of Western Australian stocks and indices.

Download the list of WA’s top 100 listed companies, as of 31st October, explore the sections below and if you don’t 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 Angela McIlroy.

As of 31 October 2016

Commodity review

Commodity prices exhibited mixed results this month, with the bulk commodities of iron ore and coal on the rise, benefiting from china’s increased demand for steel. Uranium, sitting at the other end of the spectrum, suffered a substantial decline reflective of the sustained shift in consumer demand.

Coking Coal increased by 16.2% to US$216.50/t as a result of an unexpected increase in demand from China’s steel industry. This has been driven by an infrastructure-led stimulus push, supply disruptions created by operational issues. This has shocked investors at a time when the Chinese government has been implementing production limit controls, to ultimately alleviate price pressures.

Iron Ore has continued its rebound, closing at US$65.0/tonne. This was stimulated by both the increase in demand from China’s steel industry in conjunction with falling production forecasts, which led to speculation on exchanges in China. It has been suggested that the depreciation of the yuan has also supported the raw material’s price as the local currency continues to decline against the dollar.

Gold weakened by 3.6% off the back of investor caution in anticipation of an increase in the Federal Reserve interest rate; despite slight upward influence created by gold’s safe haven status in light of the uncertain US presidential campaign outcome. This increasing uncertainty surrounding the presidential election suggests gold is in for more volatile trading during November after this month’s retreat.

Platinum experienced a decrease of 5.6% due to falling futures, a combination of a decline in the South African Rand and diminishing concerns over supply; in particular the threat of miner strikes is receding, and South Africa’s top platinum miner has settled its dispute with workers. Highly correlated sister metal Palladium also experienced declines of 15.2% despite strong car sales in China. There remains, however, some global health concerns regarding the higher levels of pollutants released by diesel engines, and with the expected longer-term shift to electric cars, palladium & platinum pricing remains constrained.

Finally, uranium continued on its downward trend enduring an overall decline in October of 15.8%, landing at US$23.75 per pound. The commodity has been subject to a shift in consumer demand surrounding the negative sentiment of nuclear power and current oversupply of the yellow cake in the market.

Commodity and Precious Metal Prices

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

Performance of WA Index and global indices

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

WA Index movement

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

The Deloitte WA Index weakened during October as the market capitalisation of Western Australian listed companies fell by 1.9% to close the month at AU$152.2bn.

Deloitte Clients & Markets Partner -Western Australia, Tim Richards, said the strengthening in steel markets in China lead to standout results in both iron ore and coking coal during the month. In comparison, gold miners underperformed on gold price weakness and likely profit-taking as portfolio weightings get rebalanced.

The major Index players in October included:

  • Fortescue Metals Group Limited‘s market capitalisation rose by AU$1.7bn (11.1%) during the month as iron ore prices reached a six-month high, and the company presented a strong quarterly production report for September 2016
  • Galaxy Resources Limited‘s market capitalisation rose by AU$45.6m (7.7%). The lithium miner’s share price increased as construction on its Mt Cattlin project neared completion and it was announced that production was to begin ahead of schedule
  • South32 Limited‘s market capitalisation rose by AU$851.4m (6.6%) during October, as the release of its September quarterly showed strong operational results and an increase in their cash position of US$551m, which analysts are anticipating will trigger a share buyback, M&A or special dividend.

In the main, the global equity markets surveyed delivered mixed results during October:

  • The All Ordinaries fell by 2.2%, as the energy sector declined following weakening crude oil and gas prices, and the banks waned after the RBA decided to hold interest rates again this quarter. Bad news brought down several large players in the index, with Woolworths, Coles, Telstra and Qantas all sliding following their quarterly results. Ardent Leisure also saw a decline following the uncertainty of Dreamworld’s reopening
  • Similarly, the S&P 500 fell by 1.94% during the month as investors wait on the Federal Reserve’s rate decision, as well as the uncertainty surrounding the US presidential election which is drawing closer and the margin is becoming even tighter
  • The FTSE 100 closed with a rise of 0.8% following significant volatility throughout the month, continuing its growth post Brexit which lowered the value of the pound, which was offset by a decline in oil shares as OPEC failed to implement the agreed supply reduction
  • The Nikkei increased by 5.9% in October boosted by global bond yields strengthening the share price of financial firms, Deutsche Bank’s recovery and the release of strong quarterly results from brokerage Nomura Holdings.
LED board

Top performers of the month

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

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

Top Deloitte WA Index Movers and Shakers in October included:

  • Homeloans Ltd (HOM) showed strong results in its annual report released last month, with a 21% increase in branded mortgage settlements delivered through third party channels, and total loan settlements of $1.8bn boosting investor interest. The company posted a 241% increase in market capitalisation from AU$50.9m at 30 September 2016 to AU$173.2m at the end of October
  • Emerald Resources (EMR) posted a 58.6% increase in market capitalisation from AU$64.0m to AU$101.6m after the company released the drilling results from its Cambodian Gold Project, showing ‘encouraging results’ and anticipated completion of feasibility study in early 2017. Emerald Resources is currently in the process of completing a merger with Renaissance Minerals, the tenement’s owner, which will result in full ownership of the gold project
  • Agrimin Limited (AMN)’s share price increased over the month of October as the company signed a negotiation protocol with the Native Title representative body for the Kiwirrkurra people, with a view to entering a Mining Agreement, bringing the Mackay Sulphate of Potash (SOP) project closer to development. The company’s market capitalisation rose by 31.7%, from AU$74.3m to AU$97.9m at 31 October 2016.
Elevator Reflection

WA Economy - from mining meca to Silicon Valley?

With the global mining industry still facing commodity price headwinds and demand uncertainty, we begin to look at alternative industries to bolster state revenues. While mature industries like agriculture, tourism and education all have their role to play, perhaps the fast-paced, dynamic technology industry will be the next boom for Western Australia? This month we look at the change in technology, specifically Blockchain, and its impact on the Western Australian market.

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 Angela McIlroy.

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