Deloitte WA Index lowest in more than two years
Hit by Chinese market fears & falling commodity prices
9 September 2015: The Deloitte WA Index weakened during the month of August, with the market capitalisation of Western Australian (WA) listed companies which comprise the Deloitte WA Index decreasing by 6.0%, to close the month at AU$126.7bn.
This was the lowest level in the Deloitte WA Index since June 2013, more than two years ago, when it hit AU$125.6bn. By comparison, nationwide the All Ordinaries’ performance also suffered during the month, posting a bigger loss of 8.0%.
Deloitte Clients & Markets Partner Western Australia, Tim Richards, said weaker commodity prices and volatility in global equity markets hindered the Index as investors became wary on the back of mixed economic news.
“August’s ‘Black Monday’ marked the biggest slump in Chinese stocks for more than eight years, a plunge which was only halted by positive economic news from the U.S., which pointed to a sustained recovery in the country,” Mr Richards said.
“It is yet to be seen which economy will lead the way - U.S. growth supporting China, or Chinese weakness shattering a fragile global economic rebound.” he said.
Most commodities surveyed fell during August, with key developments including crude oil falling by 7.3% to close at US$48.93 per barrel after a couple of volatile months, despite staying away from the lower prices experienced in March 2015 when crude was trading around US$43.
Analysts cited the Chinese stock market crash as a contributor to the decline, with the country the second largest crude oil consumer behind the U.S., where despite oversupply concerns, the active drill rig count rose for the fifth week, suggesting producers expect prices to stabilise in the not-too-distant future.
Tin, nickel, palladium and zinc fell by 12.1%, 8.7%, 6.1% and 5.5% respectively, with other metals following the same trend, or posting minor gains. Uncertainty regarding China as the world’s biggest commodities consumer, and oversupply of metals in the market were the key drivers in this result.
There does appear to be some optimism surrounding nickel, with deals concluded in recent months in relation to three Western Australian mines, instigated by Independence Group, Western Areas and Talisman Mining.
Gold was the strongest performer, increasing by 3.3% as investors turned to the safe haven asset given volatility in equity markets.
Uranium also gained, posting an increase of 2.1%. Since April 2015, uranium has started to make a comeback when the first nuclear agreement between India and Canada’s largest uranium producer, Cameco Corp. was penned, worth C$350m to supply 3,220 metric tonnes to power India’s reactors over the next five years. Significantly, uranium is the only commodity surveyed which has increased in price in the last year.
All equity markets surveyed posted weaker results in August:
- Locally, the All Ordinaries posted a loss of 8.1%, following concerns stemming from weak performance across other global markets and falling commodity prices. The banks took the biggest hits with CBA, Westpac, ANZ and NAB collectively losing AU$50bn, followed by resources and other financial services companies.
- The FTSE 100, like the All Ordinaries, is heavily weighted towards commodities stocks and subsequently suffered a similar fate, falling 6.7%.
- The Nikkei finished 8.1% lower, its biggest monthly decline since January 2014. Japanese shares fell on the back on weak domestic industrial output data, indicating weak overseas demand and uncertainty over the possibility of a rise in interest rates by the U.S. Federal Reserve.
- A combination of China’s shock currency devaluation and apprehension about Federal Reserve interest rate rises forced the U.S. S&P 500 down 6.3%, however the late surge in oil prices, following cuts in estimated production cushioned some of the fall.
The top Deloitte WA Index Movers and Shakers in August included:
Aquarius Platinum Limited (AQP)
- 34.6% (AU$67m) increase in market capitalisation
- The company, which is primarily a producer of platinum and palladium, had seen its share price fall consistently since July 2014, though this was reversed somewhat with the release of preliminary results during the month showing its operating mines producing at record levels.
Alexium International Group Limited (AJX)
- 29.1% (AU$54m) increase in market capitalisation
- The chemicals development company had a busy month, announcing a number of major orders were received for its fire retardant technologies.
Northern Minerals Limited (NTU)
- 21.2% (AU$16m) increase in market capitalisation
- The heavy rare earth company experienced a peak in share price in the middle of the month, following the signing of a Memorandum of Understanding with Jien Mining Pty Ltd for the proposed purchase of 50% of product from its Browns Range Project.
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