As it happened: ASX drops 0.9% as tech, telcos, miners dive

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As it happened: ASX drops 0.9% as tech, telcos, miners dive

And with that, we’ll tie the blog off there for the evening.

Thanks for tuning in for another massive day of earnings season. Alex Druce will be back tomorrow as Afterpay, Zip Co, Qantas, and Flight Centre prepare to report.

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Australia’s stock market closed at a three-week low on Wednesday as traders continued to rotate out of sectors that did well during the pandemic, particularly technology.

Investors were also locking in gains from mining stocks after four weeks of strong gains and digesting recent earnings announcements.

The ASX 200 fell 0.9 per cent on Wednesday. Credit:Peter Braig

And the Australian dollar reached fresh three-year highs of US79.45¢, raising concerns about off-shore earnings.

The S&P/ASX 200 closed 0.8 per cent lower at 6781.4. The index has been stuck between 6500 and 7000 points for two-months. The technology sector fell 2.7 per cent and was down 8 per cent for the year after a stellar performance in 2020.

BHP shares declined 3.1 per cent to $48.86, but were still 12 per cent higher than three weeks ago. Rio Tinto declined 2.7 per cent to $126.45, but was still $15 higher than the start of the month. Overall the heavyweight mining sector declined 2.7 per cent.

Telstra dropped 3 per cent after going ex-dividend and Afterpay dropped 3 per cent to $134.36. The financial sector dropped 0.4 per cent. Only the consumer staples and utilities sector finished in green with Woolworths up 1 per cent on strong results.

Rising oil prices continue to fuel expectations inflation could be on the move. Wages growth came in at 0.6 per cent, slightly higher than predicted, adding to the inflation argument.

The ASX declined along with major Asian bourse despite Wall Street providing a positive lead after US Federal Reserve chair Jerome Powell said the central bank would continue supporting economic growth and had a strong appetite for inflation.

“He has reassured equity markets that financial conditions will remain very supportive for a while yet,” Nomura Australia investment strategist Andrew Ticehurst said.

“(But) if central banks are just going to stay very cautious and keep rates very low, then the risk is that this spills into higher asset prices, like house prices,″⁣ he added.

New Zealand’s central bank on Wednesday said it too would remain supportive, but sounded very uncertain, Mr Ticehurst added. Both Australia and New Zealand have strengthening currencies, which makes economic recovery harder.

Betashares ETFs senior economist David Bassanese said two factors were behind the Australian dollar’s rise, but essentially the Australian dollar was benefitting from the post-COVID reflation trade.

“The US dollar is still on the nose globally,″⁣ Mr Bassanese said.

“It has been weakening since the world and markets started to recover from COVID. The second thing is Iron ore prices have been incredibly strong”

While he does not think the Aussie will get close to parity, like it did from 2011 to 2013, it would all depend on the US dollar value and iron ore prices.

“Investors globally are looking for market exposure outside the US, outside the big FAAANG stocks, and that has been putting pressure on the US dollar and benefitting the Aussie.”

Hong Kong’s market dropped sharply after the government’s annual budget revealed a rise in stamp duty on stock trading. China’s stock market has declined this week after a five day Lunar New Year holiday.

The Australian sharemarket reversed Tuesday’s gains to finish 0.9 per cent lower at 6777.8, with the major miners, tech stocks, and telcos among the laggards.

Commonwealth Bank, ANZ and Westpac were also down, while biotech CSL finished flat.

The Aussie dollar was last 79.11 US cents, having earlier hit a three-year peak of 79.45 US cents.

US futures were in the red, pointing to losses on Wall Street tonight.

While the Aussie dollar’s rise isn’t ideal for exporters – or a Reserve Bank that is keen to lift inflation – some believe it is unlikely to extend its hot streak and break the $US1 mark as it did from 2011 to 2013.

The Australian dollar pushed to a new three-year high of US79.45¢ today as strong iron ore prices and a roaring reflation trade continue to boost the currency’s appeal.

The Aussie dollar hit new three-year highs today. Credit:Louie Douvis

BetaShares ETFs senior economist David Bassanese said while the Aussie could track a little higher in the short run, an expected gradual decline in iron ore prices and the reemergence of a strong tech trade in the second half of the year should keep a lid on the currency.

“I don’t think it’s got a lot further to run,” Mr Bassanese said.

“Though that is contingent on the US dollar and iron ore prices.”

The risk-sensitive Aussie – which fell to US57¢ during the COVID market plunge a year ago – has gained consistently in recent months in tandem with improved bulk metal prices and a softer US dollar.

Mr Bassanese said the greenback was on the nose as a result of a reflation rotation out of high-growth US tech giants and into value stocks.

“It has been weakening since the world and markets started to recover from COVID,” Mr Bassanese said.

“Investors globally are looking for market exposure outside the US, outside the big FAANG stocks, and that has been putting pressure on the US dollar and benefiting the Aussie.”

Mr Bassanese said he can’t see a return to the highs of 2011 to 2013 when the Aussie rose to $US1.10 and consistently traded above the greenback.

“Iron ore prices are going to unwind somewhat as China eases back on the stimulus they’ve been providing, and as Brazil slowly comes back on-line in the supply side of things,” he said.

“I think the reflation trade we’re seeing at the moment will give way to a global tech trade similar to what we saw during the COVID recovery. So while it might go a bit higher in the short run, I would expect it to be at a mid-to-low 70 cent range on a one-year basis as opposed to pushing 90 cents.”

Mr Bassanese said the Reserve Bank was likely unimpressed by the rising dollar but also likely to be well aware the boom was based on market fundamentals.

“Obviously for the Reserve Bank it’s not ideal – they would prefer it to be lower because it hurts exports and inflation, but I would also think they can probably see it’s based on fundamentals, iron ore being so high. They wouldn’t see it as overvalued,” Mr Bassanese said.

“Ideally, the miners would also like a weaker dollar, but they’re used to the fact that when the iron ore price rises the Aussie goes with it.”

Analysts at financial firm Wilsons are tipping Nuix to join the ASX 200 in March, after the data analytics company surged in value since its stunning $1.7 billion December IPO.

Nuix – which has increased in value by 60 per cent since listing at $5.31 – is named by Wilsons as one of the most likely stocks to join the benchmark index when the quarterly rebalancing is announced on March 12.

Nuix shares were 1.2 per cent lower at $8.73 on Wednesday afternoon, but the firm is still worth about $1 billion more than it was three months ago.

Wilsons says joining the ASX 200 could see a 15-fold surge in Nuix trading volumes when the changes are implemented after the close of markets on March 19.

Also on Wilsons’ list of ASX 200 probables for March are radio equipment manufacturer Codan, and miners Pilbara Minerals, Nickel Mines and Champion Iron. Service Stream, Tassal, GWA Group, Bravura Solutions and Smartgroup are the most likely to be pushed out of the way, the firm says.
NZ telco Chorus is tipped to join the ASX 100 and packaging firm Orora is expected to be removed.

Seek quickly concluded the sell down of its Zhaopin stake to China’s Primavera Capital on Tuesday evening, but the $2.2 billion valuation reported with its half year results was clearly below market expectations.

As flagged on Tuesday, Seek’s stake in the China-based job ads group will now drop from 61 per cent to 23.5 per cent, yielding a cash payment of $697 million for Seek and a 20¢ per share dividend for shareholders when the proceeds clear.

This failed to impress the market which continued to send the stock lower on Wednesday. Shares were down 8.8 per cent to a three-month low of $25.64.

Credit Suisse were impressed with the strength of the first half result but not the sale price of Zhaopin. The broker valued Seek’s 61 per cent share at $3.3 billion compared to the transaction’s valuation of the entire Zhaopin business at $2.2 billion.

Credit Suisse said the sale price likely reflects the sovereign risk of operating in China and Seek’s need to reduce this exposure. UBS had a valuation of $3.5 billion on the entire Zhaopin business. JP Morgan said it always felt that the majority ownership of Zhaopin “represented greater risk than reward” but was still surprised at the low valuation. Seek said the Primavera consortium has a strong track record in growing online businesses.

Short selling firm Blue Orca in November published a research note on SEEK that included several criticisms of Zhaopin. SEEK denied the accusations.

There are some wild swings on Hong Kong’s Hang Seng index today. The biggest move is a sudden 7.5 per cent drop in Hong Kong Exchanges and Clearing, which operates the market. Local newspaper the Hong Kong Economic Times reported the city state will increase the stamp duty on stock trading. Online shopping site Meituan is also down sharply for the fifth session in a row.

The Hang Seng index has dropped 2.4 per cent so far this session with most of that fall in the past hour.

Japan’s Nikkei is down 0.8 per cent and mainland China’s CSI300 is down 1.7 per cent.

The tax office has secured its first conviction for JobKeeper fraud – a Melbourne man who falsely claimed $6,000. He received only $3,000 before the fraud was detected. He has been ordered to repay $6,262 in fines, reparations and costs.

So far the tax office has paid $84 billion in JobKeeper payments. Some companies that claimed it but then did surprisingly well during the pandemic and paid executive bonuses and dividends have repaid their JobKeeper, others have not.

The man convicted today claimed to be a sole trader who had lost income, when in fact he was not operating a business and he had already agreed to be nominated by his full-time employer for the allowance. He pleaded guilty and was convicted in Heidelberg Magistrates Court today.

ATO Deputy Commissioner Will Day welcomed the conviction handed down today, saying “fraud against the stimulus measures is fraud against the community, effectively stealing from the pockets of taxpayers at a time when the community needs it most”.

“Since the first payments were made in April, the ATO has monitored every payment, every day, every month, and will continue to do so until the last payment is made,” he said in a statement.

The Australian dollar has continued its red-hot run against the Greenback this afternoon, touching a new three-year high of US79.45¢.

The continued rise for the risk-sensitive currency follows a similar spike in the New Zealand dollar, which touched 73.83 US cents, its best since April 2018, after the Reserve Bank of NZ kept the cash rate at 0.25 per cent and promised a prolonged period of low rates.

High commodity prices have helped increase the Aussie’s appeal in recent days. The AUD also touched a three year high against the Euro at €0.6537, and was approaching two-and a half year peak against the Japanese Yen at ¥83.79.

Medibank Private boss Craig Drummond has warned Australia needs to rethink its approach to preventative healthcare as its stares down the realities of an ageing population and a health system under pressure post-COVID.

The $7.7 billion health insurer added 49,000 new policyholders to its books in the first half of 2021 and posted a net profit after tax up 26.8 per cent to $226.4 million.

Mr Drummond, who announced he will retire from Medibank’s top job on June 30 to spend more time with family and focus on his new role as president of the Geelong Football Club, said the fund was in strong financial shape and was seeing strong demand from younger members.

However, he noted that there were several urgent reforms needed in the sector that could lower premiums for policies as well as ensuring a better quality of care as the ageing of Australia’s population accelerates.

“We’re going to need to take a more aggressive approach to preventative healthcare. The reality is that governments simply do not have the funding capacity to build the hospitals that would be needed [as the population ages further]. So we need to take a different approach to preventative healthcare and the way we deal with primary healthcare,” Mr Drummond said.

Medibank has been expanding its telehealth and at-home care services throughout the pandemic, with its Medibank Health division booking revenue growth of 13.2 per cent for the six months to December, at an operating profit of $18.8 million.

Mr Drummond said Australia would have to turn its mind to new approaches for managing patients outside hospital settings when it was appropriate.

“I would think we are going to see a lot of work done around hospital minimisation.”

Medibank shares were trading 2.9 per cent lower just before 1:30pm on Wednesday, to $2.80.

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