Airline stocks fly, iron ore bounces, Australia invests in rare earths
Summary: Russia enters its 21st day of its Ukraine invasion. Australia backs US warning of ‘consequences’ if China sends arms to Russia. NZ opens border to Australia from April 12. Airline stocks climb also benefiting from oil declining back to $97.20. Longer term market moves reflect investors still brace for triple Rs, rising rates, rising inflation and a likely recession. Iron ore bounces high. Will BHP, Rio, CIA and other iron ore stocks follow? G7 countries order cryptocurrency not to be used by Russia or its elites. Australia invests in rare earths and rare earth stocks on ASX fly high. Plus we cover if it’s time to look at buying the dip in China.
Co-written by Market Strategists Jessica Amir in Australia and Redmond Wong in Hong Kong
What’s happening in equites that you need to know?
- In Australia, the benchmark ASX200 rose 1.1% to 7,173 points, erasing yesterday’ 0.7% drop. Stepping back we can see the market has been stuck in the mud, in the same trading range for the last 8 weeks with markets awaiting both the US Fed Reserve Bank and the Australian Reserve Bank to map out, how high rates could go. It’s not much to ask, as no one likes uncertainty. In the NZ they have done what we hope the US Fed and RBA to do; the RBNZ announced it expects NZ rates to peak at 3.4% in 2024. So they mapped out how high rates will go. The takeaway here for markets. Expect headlines to dictate daily market moves, until we know how much rates will rise by. If the Fed and RBA are more aggressive than expected, markets could move lower. If they are more dovish/sheepish/conservative the markets and tech stocks in particular could move higher.
- As for best performers on the ASX today? Corporate Travel Management (CTD) shares rose 5.6% rising above its 200 day moving average on optimism that NZ will open its border to Australia. Qantas (QAN) Australia’s biggest airline rose 2.8% also moving above its 200 day average. Both CTD and QAN are now flagging technical rallies could begin, as both shares are showing positive signs on the RSI and MACD technical indicators, suggesting some traders could now be buying these stocks for the longer term. QAN is also expected to declare its first double digit revenue growth in 14 years, this year. Meanwhile Qantas announced its expanding its use of sustainable aviation fuel (SAF), and will outline its interim carbon neutral target later this month. As for other noteworthy moves, Zip (Z1P) shares rose 4.2%, rallying off their two year low. But don’t be fooled by the short term rally. The buy now pay later market is over saturated and the market pricing in its revenue growth is slowing from its 2021 peak, this is why Zip shares are down 90% from their high. In other moves, Gold Road Resources (GOR) shares rose 2.7%, hitting a 52-week high as markets prepare for stagflation.
- In Asia, Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I). Hang Seng Index and Heng Sang TECH Index (HSTECH.I) rallied 2% and 6% respectively. Investors found relief from the report that the U.S. Public Company Accounting Oversight Board has “actively engaged” in discussion with the Chinese regulatory authorities to reach a resolution that could give the U.S. regulator access to audit papers and data of Chinese ADR companies, in ways similar to arrangements with some other countries. CSI300 rose about 1%. Despite that further mobility restriction imposed in cities, such as Nanjing and 1,952 new COVID cases yesterday, A share airlines, tourism and shipping stocks rallied. In Singapore, the Straits Times Index (STI) continued to trade well, up 1% this morning.
- In the US, the S&P 500 (US500.I) and Nasdaq 100 (USNAS100.I) this evening are expected open flat and search for direction, ahead of the US central bank’s interest rate outcome, with the US central bank’s rate expected to rise by 0.25%.
What you need to consider
- Australia plans rare earth boost, to challenge China and boost green exports. Australia has some of the world’s largest rare earths reserves in the world, but China dominates 70-80% of the global industry, in supplying the 17 rare earths elements needed in high-tech manufacturing. Today the Australian Prime Minister announced as part of its his Federal Election campaign, A$243 million ($175 million) will be allocated to four new projects, including a new nickel manganese cobalt battery material refinery hub in the Kalgoorlie region and a vanadium refinery project led by Australian Vanadium (AVL). In September Scott Morrison’s government announced a $2 billion loan facility to help secure Australian critical minerals projects. In rare earth stock moves today; Australian Vanadium (AVL) surged 31% on the news, Lynas Rare Earths (LYC) rose 3.3%, Vital Metals (VML) rose 6.4%, Northern Minerals (NTU) rose 2%.
- China released stronger than expectation industrial production (+7.5% YoY), fixed asset investment (+12.2% YoY) and retail sales (+6.7% YoY) data for the first two month of 2022. Nonetheless, investors are skeptical about the sustainability of the momentum in economic activities amid the escalation of COVID related restrictions and lingering weakness in the property sector. New home sales prices in the largest 70 cities in China in February were up 0.5% from January. Price increases concentrated in 1st and 2nd tier cities while price declines persisted in lower-tier cities.
- If you believe that the rare earth market could continue to push high, you could buy a rare earth stock, or look at Rare Earth ETFs. Arare earths ETF to consider is the REMX, VanEck Vectors Rare Earth/Strategic Metals ETF that invests in 22 of the biggest Rare earths and strategic metal stocks in the world. Its biggest holdings are Pilbara Minerals (PLS), Lynas Rare Earths (LYC) and China Northern Rare Earth Group (600111), as well as AVZ Minerals (AVZ) and Allkem (AKE).
- The recent selloff in the Chinese internet stocks have priced in much global macro risks as well as China-specific risks. In a bear market, being technically oversold is not a reason to buy. Rebounds can be fast and short-lived. For investors, it is more advisable to look at the risks and rewards after taking into the consideration of the valuation of the cash flows that the business of individual companies can generate in the future and the amount of losses that the investors themselves can sustain. On that basis, some of the quality names of the Chinese Internet stocks may start looking attractive in a 12-month investment horizon. The Chinese economy and stock market are too large and too important to be prolongedly reduced in the weighting of overseas institutional investors’ portfolios, even in a new paradigm of reversing some of the globalization happened in the previous decades. Ahead of the all-important 20th Party Congress, Chinese authorities have social, economic and financial stability top on their priority and fiscal and monetary policies may tend to be supportive to achieving these goals.
Earnings to watch
In Hong Kong & mainland China
- Mar 16: CK Intrastructure (01038), Evergrande Services (06666), Kingdee (00268), Powerlong Commercial (09909)
- Mar 17: China Telecom (00728), CK Hutchison (00001), Fuyao Glass (03606), Powerlong Real Estate (01238)
- Mar 18: China Merchants Bank (03968), China Molybdenum (03993), Ping An Insurance (02318), Sunac Services (01516)
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.