Market drops 3.9% for the week as China lockdowns return
A fairly dismal week in the Australian stock market dribbled to a lower close on Friday, losing 0.3% or 16.9 points to close the ASX 200 at 6828.7 points.
That meant the index was down 3.9% for the week and carefully shrugged off a slightly positive lead from Wall Street, with the S&P 500 and Dow closing higher.
It wasn’t too difficult to look around and see what was dragging our market down with the sharp drop in commodity prices after the Chinese government decided to force 20 million people living in Chengdu to self-isolating for four days as part of its COVID-zero approach.
Iron ore stocks are running low
Unsurprisingly, it was a tough remedy for the heavily China-reliant mining sector, which fell 2%, with shares of BHP (ASX:BHP) singlehandedly slashing the most points from the index as they fell 77c or 2.1% to $36.74.
The same situation applied to the other major iron ore players when they reacted to an 8% drop in the price of iron ore with Rio Tinto (ASX: RIO) and Fortescue Metals (ASX: FMG) having both fell 2.5% with ex-dividend status. from BHP helping to drive a 10.3% weekly drop in the mining index.
Tech looked good but then fell off
The tech sector started Friday as a potential counterpoint, starting the day strong, but after Nasdaq futures began to turn south, share price gains were wiped out and replaced by falls.
Some of the most notable tech falls include Novonix (ASX:NVX), with shares down 8.4% at $2.06, while shares of accounting software company Xero (ASX:XRO) fell 2.3% and shares of WiseTech (ASX: WTC) fell. 2.1%.
A few sectors helped stop the rot, the main one being the big banks, with the defensive Consumer Staples sector the only sector to end in positive territory for the week, up 0.3%.
Big banks bounce back
Overall, financials rebounded 0.7% as investors became more accustomed to declines in new home lending, with shares of Commonwealth Bank (ASX:CBA) rising 0.9% to 96 $.95, shares of NAB (ASX:NAB) and Westpac (ASX:WBC) rose 0.8% while ANZ (ASX:ANZ) lagged with a rise of 0.5% to 22 $.75.
AMP (ASX:AMP) stock disappointed, falling 1.7% as it lost management of its $2.7 billion AMP Capital Retail Trust after the majority of unitholders opted for the external control.
GPT Group (ASX: GPT), which is believed to be in charge of controlling AMP retail confidence, was the best performer in the sector with a 2.7% rise in its shares.
Small Cap Stock Action
The Small Ords index tumbled 4.46% this week to close at 2862.6 points.
The small cap companies that made headlines this week were:
AD1 Fund (ASX: AD1)
AD1 Holdings announced that the group’s revenue increased 12% for fiscal 2022 to $6 million, thanks to the company’s significant investments in technology, product development, sales and marketing.
“As we enter fiscal 2023, we are well positioned to capitalize on a strong pipeline of won contracts, which is currently 200% stronger than the same period last year,” explained AD1’s CEO, Brendan Kavenagh.
The company followed up strong performance in fiscal 2022 by announcing the acquisition of Scout Talent Group for $65 million.
Kavenagh said the acquisition is in line with AD1’s strategy of acquiring growing SaaS companies with rapidly expanding markets.
The Hydration Pharmaceuticals Company (ASX: HPC)
Revenue increased 80% for The Hydration Pharmaceuticals Company (doing business as Hydralyte America) for the six months ending June (H1 FY2022).
The company earned US$4.1 million for the period, which was supported by a 95% increase in net e-commerce revenue to US$1.8 million for the period.
Traditional retail net income was also higher – up 69% to US$2.3 million.
Over the next six months, Hydralyte America expects further growth in online sales, propelled by its ongoing marketing investments.
Archer Materials (ASX:AXIS)
Archer Materials has achieved its long-term technology and development goal of manufacturing biochip device components smaller than 10 nanometers (nm).
The company was able to fabricate sub-10nm features “reproducibly and reliably.” To do this, she developed a number of advanced lithographic processes on a silicon wafer in a clean room environment.
Archer’s chief executive, Dr Mohammad Choucair, said reaching this goal was “a significant technical achievement” for the company.
“We are developing semiconductor devices that push the boundaries of modern technology,” he said.
Clear Credit (ASX: CCR)
Another small cap with a strong increase in revenue in fiscal 2022 was Credit Clear, which showed a 95% increase for the period.
Revenue reached $21.5 million for the period, including $3.1 million from a record monthly performance in June.
Credit Clear also achieved profitability in May and June and this is expected to continue throughout fiscal 2023.
Since fiscal 2018, Credit Clear has grown at a compound annual growth rate of 183%.
The company ended fiscal 2022 with an annual revenue rate of $37.4 million and with $10.2 million in the bank to fund its ongoing growth plans.
TZ Limited (ASX: TZL)
Smart locker technology and software company TZ Limited has reported its first after-tax net profit for fiscal year 2022.
Net income after tax of $42,896 was significantly higher than the loss of $1.66 million in fiscal 2021.
Adjusted EBITDA for fiscal 2022 climbed to nearly $1.3 million from $137,364 in fiscal 2021.
The rise in EBITDA and first earnings was supported by a 31% increase in revenue to $21.4 million.
TZ non-executive chairman Peter Graham said the company’s turnaround had been aided by the revenue stream from its software platform.
RLF AgTech (ASX:RLF)
RLF AgTech, which said its revenue grew 26% to $10.7 million in fiscal 2022, also hit record revenue.
RLF AgTech Managing Director and CEO Ken Hancock said the company established stepping stones in fiscal 2022 to generate revenue and grow the company internationally.
“We have made a significant investment of time and resources, which will prepare us for strategic and aggressive expansion as a leading provider of high-value crop nutrition products,” he said.
RLF AgTech ended the period with $8 million in the bank to fund its growth strategy.
The week ahead
Looking forward to this week, there is one element that absolutely dominates.
On Tuesday, the Reserve Bank Board meets to decide on the final level of the cash rate which will have wide ramifications across the real estate and stock markets.
If you are to believe the pundits, the policy rate will rise by 50 basis points to 2.35% – a move that would be followed by a series of interest rate hikes on floating rates on home loans as safe as the night will follow day.
Increases in deposit offered rates will be slower to come down, although this part of the monetary policy transmission has been lagging for some time now.
Rising official interest rates are also bad news for equities and real estate, as they increase the risk-free rate of return and make current dividend and available rent yields less generous.
This often causes real estate and stock prices to adjust downwards to adjust yields to a more appropriate level.
If there is a 50 basis point increase, it will be the fourth consecutive increase of this size and much of the attention will shift to reading the tea leaves to try to determine how far the RBA will go before decide that it will take a pause in rate hikes.
This speculation will also extend to a speech by RBA Governor Dr Philip Lowe on Thursday on “the economic outlook and monetary policy”.
Other releases to watch include Wednesday’s national accounts, which are expected to show Australia’s economy grew around 0.8% in the June quarter.
Other local releases include consumer confidence, new car sales, job vacancies, and balance of payments.
Internationally, the main things to watch are Chinese inflation and international trade, US consumer credit and Chinese services.
U.S. markets will also be closed on Monday due to the Labor Day holiday.
The best actions of the week