24 June 2024 | Weekly Snapshot

Did you know?

Indonesia has recently grown to become the superpower in nickel production (refer chart below), which has resulted in the near-collapse of Australia’s nickel production. This is another interesting chapter in the race to build self-sufficiency in critical metals, which is often at odds with basic economics. Will the Australian taxpayer, for example, be willing to subsidise Australia’s now loss-making nickel operations?

Market Movements

The Australian market was modestly higher this week (up 0.2%). Defensive sectors were typically stronger (Utilities up 3.3%, Health up 2.0%) whilst cyclical sectors weaker (Resources down 1%, Energy down 2%). Fortescue was down 3.8% after one of their largest Chinese shareholders, Hunan Valin, reduced their stake from 14% to 13% in a large block trade at a 5% discount to the prevailing price. After heated debate regarding potential over-valuation, the IPO of Guzman Y Gomez was a hit. The stock finished at a near 50% premium to its issue price of $20.

The RBA left the cash rate unchanged at 4.35% this week and but showed some unease about the trajectory of inflation. This could in part be attributed to the recent rises to the minimum wage.

In China, industrial production slowed to +5.6% for the year (May) down from last month’s +6.7%. Fixed asset investment also unexpectedly slowed to 4.0% for the year from 4.2% last month. Real estate investment contracted 10.1% for the year. Retail sales were a bright spot, increasing 3.7% for the year, a decent beat on the 3.0% expected and the 2.3% annual increase last month.

In the USA, the market rose by 0.7% but was an otherwise inverse story to the Australian market, with cyclical sectors rallying (materials and energy up 1.2% and 2.2% respectively) whilst defensives, including health and utilities, were basically flat. Retail sales in May rose just 0.1% for the month, a decent miss on the 0.3% expected. The annual growth rate slowed to 2.3% from 2.7% last month.

Some worrying signs for electricity prices in Victoria. Wholesale gas prices in Sydney and Melbourne have surged to their highest in more than a year. Long-building supply issues and the recent colder weather in Melbourne has led to both increased gas usage and a resulting price spike. Not what Victoria’s manufacturing base want to see.

Portfolio Movements

Treasury Wine Estates provides update on Penfolds / China Strategy – Affirms 2024 earnings guidance

• TWE affirmed 2024 earnings guidance forecast of approx. 7% growth in earnings in financial year 2024 driven by strong top-line growth. They also expect stronger growth in FY25
• They rolled out their broader growth strategies in China. China now accounts for up to 26% of the world’s luxury goods consumption.
• China has removed tariffs on Australian wine exports which effectively shut down that export market a couple of years ago.

Ramsay could look to sell its Sante business (France)

• Reports that Ramsay could be looking to offload its 52.3% holding in Ramsay Sante which has been underperforming. Ramsay has not commented on the story.
• France-based Ramsay Sante is the 2nd largest private care provider in Europe and has 443 hospitals, clinics, primary care and imaging centres across the continent. Ramsay first branched out into French hospitals in 2010.
• Ramsay shares finished reasonable flat for the week at $48.50 but are down from $55 a year ago.

Dexus revalues assets down by 9%.

• Dexus expect to report a 9.0% drop in its book values for the six months to 30 June 2024, driven by discount (interest) rates, partially offset by market rental growth.
• After the decline, DXS is trading at a valuation of 0.8x its forward-looking book value. Historically, it has traded between 1.0x – 1.1x. This suggests some market nervousness around the outlook for profits, specifically rental growth and property expenses, including cost overruns on development projects.
• DXS shares finished reasonable flat this week at $6.50 but are down from $8.00 a year ago

The Week Ahead

• Wednesday: Australia CPI, monthly expectations for an increase to 3.8% from 3.6% (April).
• Thursday: United states core personal consumption spending, which is expected to be flat at 3.6% from last month. On the same day, the price index for core personal consumption is expected to show a reading of 3.3%. Taken together (spending and prices), the read through is that activity (volumes) in the US economy are close to 0.
• This week: President Biden is expected to sign ‘the Advance Act’ into law. The act is designed to reduce costs for nuclear energy developers by streamlining the permitting process, which includes cutting fees and speeding up approval times, and encouraging the development of small modular nuclear reactors (SMRs).