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Packer packs his bags, BHP tumbles and Facebook becomes a value stock: What we learned this week

Lewis Jackson  |  24 Jun 2022Text size  Decrease  Increase  |  
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BHP bear market

As higher rates vaporised US tech stocks this year, Australian investors watched on safe behind a moat of iron ore. No longer. BHP is down 25% since an April peak. Rio has lost 15% in just over three weeks. Commodity prices are swooning as investors bet central bank rate hikes will smother demand for raw materials. Iron ore is circling towards the US$100 mark (US$109.75 as of Friday morning). Oil is nearing pre-invasion levels. Chinese stimulus could bolster prices short term, but twenty plus years into the China boom, iron ore’s fundamentals are nowhere near as strong. The miners know it and are spending billions snapping up what the industry calls “future facing metals”. Morningstar forecasts iron ore around the US$60 mark longer term. 

Queensland wants a lump of coal in its stocking

Queensland is rewriting tax law to cash in on record coal prices. At roughly $400 a tonne, coal prices remain near the all-time highs first notched after Russia invaded Ukraine. Miners enjoying the unexpected bounty will need to cough up for the coffers. Three additional tiers will see royalties rise in line with coal prices to a maximum level of 40%. The current ceiling is 15%. Miners accused the government of putting jobs and investment at risk. Treasurer Cameron Dick said coal royalties had been frozen for a decade. Meanwhile Norway taxes its oil and gas sector at 78% (of net profit), stashing the proceeds in its US$1.2 trillion-dollar sovereign wealth fund.

"Boomer fantasy"

With inflation forecast to hit 7% this year, unions want wages to keep pace. Businesses and the Reserve Bank Governor warn meaty wage hikes will worsen worker welfare. They fret about a 1970s style wage-price spiral that would fuel inflation and force rates (and unemployment) higher. Australian Council of Trade Unions Secretary Sally McManus said  fears of a 1970s wage-price spiral as “Boomer fantasy,” in an interview on Thursday, saying she “looked forward to the day when people start calling for caps on profit until inflation is under control.”

Facebook is now a value stock

Mark Zuckerberg is being booted from growth stock heaven. When the FTSE Russell 1000 Growth Index reconstitutes on Friday, Facebook owner Meta Platforms won’t be there. Down 53% this year, the Zuck is being shunted onto the Russell’s sister index: The FTSE Russell 1000 Value. Netflix and Visa may join Facebook after similar hair-raising falls. Once-glitzy FAANGs will now rub shoulders with plebs like Berkshire Hathaway, Pfizer and the grubby oilmen of Exxon Mobil.

Packer up boys

Crown left the ASX boards on Friday for the arms of US private equity giant Blackstone. Major shareholder James Packer will walk away with $3.3 billion for his troubles (two Royal Commissions among them). The exit comes two days after state regulators gave a tentative nod to opening the gaming floors atop the giant glass gherkin that is Sydney's Barangaroo Tower. Investors who want a taste of Crown will now need to do so via the roulette table.

Lithium runs out of charge

Days after muscling aside Platinum Asset Management for a spot in the S&P/ASX 200, lithium play Lake Resources is flaming out. Shares have been sliced in half in little over a week. Selling picked up pace on Monday after the shock exit of managing director Steve Promnitz. On the way out the door he allegedly dropped his ~10.2 million share holding. Nothing to see here. The stock has been shilled aggressively to retail investors, many of whom are now nursing major losses. Live by the hype, die by the hype.

ASX ekes out weekly gain: Market recap with AAP

The local share market has ended the week with a flourish, with strong gains by tech stocks and lithium players helping offset weakness in the energy sector.

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The benchmark S&P/ASX200 index gained 0.77% on Friday to finish up 1.6% for the week, its best performance since the week ending March 18. The index is down 8.8% in June, putting it on track for its worst monthly performance since March 2020, with four trading days still to go.

"Also our first back-to-back improvements for the month as well," noted CommSec market analyst Steven Daghlian. "But we're still in that correction territory."

Tech stocks were boosted by a drop in bond yields, which makes the risky high-growth sector seem more attractive.

Australian 10-year bond yields hit an eight-year high of 4.1% last week after Reserve Bank governor Philip Lowe gave a hawkish interview to the ABC, but tumbled to 3.7% this week amid fears the pace of rate hikes will trigger a recession.

Meanwhile, Vulcan Energy soared 26.8% after Fiat and Chrysler owner Stellantis N.V. agreed to take an 8% stake in the emerging lithium producer for $76 million.

It's the first upstream investment in a lithium company by a top tier automaker, and the funds will be used to expand Vulcan's zero-carbon-footprint lithium project in Germany's Upper Rhine Valley.

Qantas fell 1.6% after the airline said it expects to report a "significant" full-year loss, although it might earn as much as $550 million in underlying operating profit for the second half. The flag carrier is also cutting capacity, mostly from high frequency routes to better cope with high fuel prices, while also announcing new flights from Perth to both Jakarta and Johannesburg.

Betmakers soared 20% after the wagering technology company said it would conduct a buyback of up to 10% of its shares.

Blue chip movers

  • Magellan Financial Group ↑ 8.9%.
  • Telstra ↑ 1.3%.
  • AGL ↓ 1.3%.
  • Supermarkets: Woolworths ↑ 7.4% / Coles ↑ 5.6%.
  • Resources: Rio Tinto ↓ 3.5% / BHP ↓ 4.7% / Fortescue metals ↓ 6.0%.
  • Big banks: NAB ↑ 3.9% / Westpac ↑ 0.9% / CBA ↑ 2.7% / ANZ ↑ 2.7%.

What we’re watching next week

  • Tuesday: First release of census data.
  • Wednesday: Retail sales. Watch for signs the all-important consumer is holding off.
  • Thursday: Last day of the financial year.

One good read

The world’s bubbliest housing markets (Australia among them) are flashing warning signs.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

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