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Deloitte WA Index: Commodity blues

9 December 2015: The Deloitte WA Index decreased during the month of November, with the market capitalisation of Western Australian listed companies declining by 4.4% to close at AU$118.4bn.

Deloitte Clients & Markets Partner Western Australia, Tim Richards, said the decrease reversed the 4.5% increase experienced in October, which was primarily lead by the major mining companies after the release of positive September quarter results.

“November saw dismal performance by mining stocks as key commodities endured a further slump in prices, driven primarily by China’s economic slowdown and the continued strengthening of the US dollar,” Mr Richards said.

Among the major Index players:

  • Wesfarmers Limited’s market capitalisation fell by AU$1,393m (-3.1%) during the month. With a diversified portfolio, its resources business continues to be burdened by low export coal prices, although the diversity of the group continues to act as a cushion in these turbulent times.
  • South32 Limited’s market capitalisation fell by AU$1,464m (-18.8%) in response to poor market sentiment in the mining industry and key commodity price declines, including, alumina, silver, nickel and coking coal. The company's manganese business also moved towards cutting production during the month, with the closure of several manganese mines in South Africa.
  • Northern Star Resources Limited’s market capitalisation declined by AU$198m (-12.0%) on the back of the drop in gold price to a five year low amidst talk of the US Federal Reserve raising interest rates.

Key commodity movements included Gold which closed the month down 6.8% at US$1,064 per ounce - its lowest price in five years off the back of a strengthening US Dollar and market expectation of a US interest rates increase in coming weeks.

Platinum and Palladium experienced the most substantial decreases, by 15.6% and 18.6% respectively. Platinum has been hit hard in Europe following the Volkswagen emission scandal, resulting in weaker vehicle sales figures as consumer confidence in the automaker has wavered. Palladium has felt the impact from fears of China’s predicted slow down and associated decline in the world’s largest vehicle market.

Iron ore continued its bearish trend, slumping by a further 9.1% as market concerns over reduced steel production in China lessen demand, while stockpiles continue to grow.

Crude oil fell by 9.4% amid continuing concerns of a global surplus and the persistent threat of future interest rate increases, a strong US Dollar and passive economic growth.

All equity markets surveyed posted stagnant results for the month of November. The All Ordinaries, FTSE 100 and S&P 500 all dipped mid-month on the back of reports of an oil glut and speculation over rising US interest rates. This then improved throughout the second half of November to finish relatively unchanged from the previous month end.

  • The All Ordinaries lost 1.3%, with banks Westpac and Commonwealth emerging winners with a combined market capital increase of AUD$11.5bn, while BHP contributed the biggest market capital loss of AUD 26.2bn.
  • The FTSE 100 remained largely unchanged, decreasing by 0.1% with Healthcare company AstraZeneca PLC experiencing a rise in market capital of GBP 4.5bn, and BHP mirroring it’s All Ord’s performance, falling by GBP 13.0bn.
  • The S&P 500 rose marginally by 0.5%, helped by a combined increase from Google, Amazon and Microsoft to the tune of USD 51.6bn.
  • The Nikkei posted the most positive movement, with an increase of 3.5% spurred by a strong increase in manufacturing and export activity.

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The top Deloitte WA Index Movers and Shakers included:

Norwood Systems Limited (NOR). The mobile telecommunications application provider posted a 260% increase in market capitalisation from AU$36m to AU$131m. Norwood confirmed its entry into the North American and European markets mid-month, announcing 60% of its revenues in the week ended 8th November were from account holders located on those continents downloading the World Phone app. Since launching on 31 July 2015, more than one million users had downloaded the app worldwide by mid-November, delivering a revenue run rate of more than AUD$1.3m per annum.

Dacian Gold Limited (DCN), which posted a 41% increase in market capitalisation, from AU$69m to AU$98m. The company launched a fully underwritten AU$25million equity raising in early November, issuing more than 26 million fully paid ordinary shares for $0.69 per share.

Zipmoney Ltd (ZML), posted a 38% increase in market capitalisation, from AU$57m to AU$78m. The company announced the successful closing of an AU$108 million asset-backed securitisation warehouse with US asset manager Victory Park Capital (VPC), enabling ZipMoney to significantly increase its growth in the retail finance sector.

With the WA technology sector recently capitalising on the depressed resources sector, evidenced through the increased number of reverse acquisitions of struggling listed junior exploration companies, this month Deloitte also took a look at some of Western Australia’s emerging companies in the technology sector as we look to a future beyond mining.

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