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Deloitte WA Index: Signs of recovery?

11 November 2015: The Deloitte WA Index increased during the month of October, with the market capitalisation of Western Australian listed companies increasing by 4.5% to close the month at AU$123.9bn.

Deloitte Clients & Markets Partner Western Australia, Tim Richards, said the strong performance of the miners and recent indications of fiscal stimulus from the European Central Bank helped strengthen the Index.

“The growth in October represents a possible shift in sentiment from what was a lengthy bear run for the WA Index up to September, which fell a whopping 20.6% or AU$30.8bn since June 2014,” Mr Richards said.

“The major mining companies really led this shift, with positive September quarterly results boosting many share prices. This included Fortescue Metals Group, South32 and Sandfire Resources, which saw market capitalisation rises of AU$841m (14.8%), AU$532m (7.3%) and AU$149m (17.6%) respectively.”

Mr Richards added that despite the recovery for the Index, iron ore had the biggest decline for key commodities surveyed during October, dropping 10.8% to finish the month at US$49.50 per tonne.

“With demand contracting and production cuts not materialising as expected - in part due to the weakening of the Australian Dollar against the US Dollar and the successful cost cuts from Australian producers - a price rally currently looks unlikely,” he said.

Other commodities surveyed included platinum, which recovered to finish the month up 7.9% at US$989 per ounce. The metal was hit hard last month by the Volkswagen “Dieselgate” emissions scandal which broke on 23 September and saw the metal hit a seven year low of US$893 per ounce, with a partial recovery experienced this month.

Silver rose 7.0% to US$15.57 per ounce, with virtually all of its gains coming in the first week of the month, following a four month decline which came to an end in September. Many investors are of the opinion that the precious metal has bottomed out and will continue its recovery, with dealers around the world raising concerns around supply shortages.

Aluminium decreased 7.6%, continuing its year-long decline. Despite many of the Chinese smelters running at a loss, the price decline does not look like halting anytime soon, which may lead to reduced production, especially in the United States.

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All equity markets surveyed posted strong results for the month of October:

  • The All Ordinaries gained 4.5%, driven mainly by banking stocks and the Big Four banks raising their standard variable home rates during the month. Strong hints of fiscal stimulus from the European Central Bank have also led to gains in equity investments across the board.
  • The FTSE 100 followed suit, increasing by 4.9% driven by a boost in investor sentiment, again largely impacted by continued expectations of quantitative easing from the European Central Bank.
  • The S&P 500 rose 8.3%. Stabilising of the Chinese economy and the country’s central bank cutting borrowing rates, together with quantitative easing measures from the European Central bank bolstered performance during the month.
  • The Nikkei posted the biggest improvement, with an increase of 9.7%. The performance of the Japanese manufacturing sector has been the best in a year, with increases in both domestic and international orders. This may suggest that the slowdown in China and other emerging countries is having a smaller impact on the Japanese economy.

The Deloitte WA Index Movers and Shakers in October included:

Programmed Maintenance Services Ltd (PRG) which posted a 130% increase in market capitalisation from AU$315m to AU$725m. On 16 October, the company formally merged with fellow labour hire operator, Skilled Group Limited, offering potential synergies focusing on cost savings, market leadership, enhanced earnings diversity and cross-selling opportunities.

Galaxy Resources Limited (TLM) which posted a 97% increase in market capitalisation from AU$43m to AU$85m. General Mining Corporation Limited signed a sales and distribution agreement with Mitsubishi Corporation on 29 October for up to 100% of the lithium-bearing spodumene concentrate produced from the Mt Caitlin project, and in which Galaxy and General Mining each have a 50% stake.

Aquarius Platinum Limited (AQP) which posted a 69% increase in market capitalisation from AU$215m to AU$363m. The company’s share price went up after receiving a bid from South African gold producer Sibanye Gold Ltd to acquire all its shares for cash.

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