APAC Market Digest Feb 18: Gold stocks rally, plus why we’re bullish on AUD
Summary: The Australian stock market outperforms global markets this week as Gold stocks up their ante, with sophisticated investors buying in. We also look at this week’s best performing stocks on the ASX, including a property stock, and a scrap metal recycling company. Plus, why investors are buying the Aussie dollar, which we are bullish on. Australia exits coal earlier than expected and China announces it will ramp up production. APAC considerations and trading ideas are below.
What’s happening in markets?
- The Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) sank into the red overnight, both falling over 2%. Week to date, the Nasdaq is 0.5% down, the S&P500 is down 0.8%. The overnight drop came after reports swirled that Russia could invade Ukraine ‘any day now’ (US National Security Advisor). The next lower levels to watch are 14,000-13,700 for the Nasdaq 100, and 4,354 for the S&P 500 index. Noteworthy stock movers include Nvidia (NVDA) falling 7.8% despite its sales and earnings beating expectations. Tesla (TSLA) shares fell over 5% after a consumer report ranked the electric vehicle (EV) maker 22rd out of 32 brands, down seven spots compared to the year before. Subaru (FUJHY) was voted number one, Mazda (MZDAY) was second, BMW (BMW) third. As for the ‘top pick’ for the best electric vehicle, Ford (F) came out on top.
- The Australian share market ASX200 (ASXSP200.I) fell 0.9% by Midday Friday, but holds onto a weekly gain of 0.4% thanks to better than expected results this week, including from metal recycling company; Sims Metals (SGM) with its shares up 20%, while retail property group Vicinity Centres (VCX) shares rose 12% on signaling a retail recovery is underway. Wine giant Treasury Wine Estates (TWE) shares rose 12% week to date after brand Ambassador, Snoop Dog helped to lift US sales, offsetting weaker Chinese sales. It’s also vital to know, this week six of the top ten performers are gold stocks; including Silver Lake Resources (SLR), Northern Star (NST) Evolution Mining (EVN) all up over 14% each. It comes as investor are rushing into Gold (XAUUSD) which hit $1,900 (an 8 month high) on the back of safe haven demand rising, amid Russia/Ukraine tension. Also keep in mind, gold has outperformed equities in all interest rate hike cycles since 1972.
- Hong Kong’s Hang Seng (HK50.I) and China A shares: Hong Kong stocks and A Shares ended yesterday with modest gains despite volatility due to news reports about Ukrainian military allegedly firing mortar shells and grenades at rebel localities in the Donbas region. Standard Chartered Bank (02888.HK) reported below expectation 4Q results which were dragged down by weaker non-interest income and impairment of investment in China Bohai Bank. Its shares fell 2.2%. EV batteries and non- were among the top gainers. Ganfeng Lithium (01772.HK) was up 7.6%, BYD (01211.HK) up 2.7%, Chalco (2600.HK) up 5.2%. In A shares, ESG, lithium, solar and infrastructures outperformed. Overnight, following the sell-off in the U.S. markets in response to President Biden’s warning about imminent Russian invasion into Ukraine, most ADRs fell over 1%. Written by Redmond Wong in Hong Kong.
- Crude oil (OILUSMAR22 & OILUKAPR22) is in a tug of war and holds at $91.76 a barrel. On one side, pressuring oil lower; are talks with Iran that resurrected, which could see South Korea import Iranian oil. On the other side, pressuring oil higher, is the lack of global supply, increasing demand as global mobility increases and of course, there’s heightened tensions between top energy exporter Russia and the West over Ukraine.
- In Iron ore (SCOH20) news, its price has slipped 1.3% to $129.90. Iron ore shipments from Australia fell from 17 million tones in a week to 15 million tones (for the week to February 4), somewhat in line with our expectations as the Beijing winter Olympics are on. As reported last and this week, we also anticipate the iron ore price to pull back further, before resuming its long term rebound and uptrend.
- BHP (BHP) the world’s biggest iron ore company trades 0.2% higher today, ahead of paying a record dividend next month. BHP’s shares look supported to move higher and continue its long-term rally from the November low. It’s also worth nothing, from a technical perspective, BHP’s shares flagged a technical signal (a golden cross) suggesting its rally is also supported.
What to consider
- In Energy news; Australia will exit coal earlier than expected, while China signals it wants to ramp up supply. Origin (ORG) announced it will shut down Australia’s largest coal-fired power station in 2025, seven years ahead of schedule to curb emissions. A similar thing occurred in in 2017, when AGL (AGL) warned it would close its NSW’s coal-fired power station earlier than planned. The government in power at the time stepped in, and AGL kept the station running (mostly). In April 2022, AGL’s NSW coal fired power station will finally close. And both AGL and ORG aim to pivot to producing green energy (hydrogen) at their closed facilities. This highlights the lack of coal supply in the market. While demand mounts as coal is increasingly needed to moderate extreme weather. The EIA says coal demand will hit another record this year. China, India and Russia are the key buyers, with 70% of their energy being from coal. Overnight, it seems, China responded, announcing it will increase production and run their local coal-fired power plants at full capacity, despite the country vying to reduce emissions.
- Hong Kong & China A share markets: Hong Kong & China A share markets:
- Renminbi: According to SWIFT, renminbi was at the position of number 4 with a share of 3.2% in international payments via SWIFT, almost doubled from the 1.65% level two years ago . The rise was largely attributable to foreign buying of Chinese government bonds over the past couple of years. Russian oil company Gazprom Neft’s jet fuel subsidiary said this week that it has switched to accepting renminbi in settlements for refueling flights of Russian airlines in China.
- Chinese Property: A lower-tier city in the Shandong province was reported to have reduced home down-payment ratio for first-time home buyer to 20%, down from 30%. It would be interesting to monitor if the same will be happening in larger cities in coming months. Written by Redmond Wong in Hong Kong.
- The Australian dollar (AUDUSD): We are increasingly seeing fund managers and superannuation funds buy the AUDUSD for their portfolios, which has taken the Australian dollar to a three week high. Since November last year, the Aussie dollar has been ho-humming around 71.79 US cents but now...the times are changing and we’re increasingly bullish on the Aussie dollar rising over the long term. Why? Well firstly Australia opens its international borders next week, for the first time since COVID-19 began. Secondly, Australia has one of the strongest balance sheets (also known as the 'balance of trade', as Australia exports more than its imports) and this is attractive to foreign investors. Thirdly, China is likely to increase its Australian commodity buying, as it’s relaxed its steel emissions target by 5 years (iron ore is the key ingredient of steel and Australia is the largest iron ore exporter). Also supporting commodity demand, are the easing monetary conditions in China, with their central bank expected to drop interest rates again. And fourthly the AUD is being supported higher by soft commodities (wheat, sugar, cattle, poultry), prices surging to records. Australia is a large exporters of these, while the Australian government is expected to provide more support to Australian industry, as it wants to grow Australia Agriculture to a $100 billion industry by 2030.
- Asia: We continue to find energy, industrial and EV metals, precious metals and infrastructure interesting amid an overall risk-off environment. Written by Redmond Wong in Hong Kong.
For a global look at markets – tune into our Podcast
For prior Australian market and APAC updates - click here.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.