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3 ASX Tech Stocks with Significant Movements in last Two Days

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After the restrictions on foreign investment in US business and US-China trade war fears, Australian equities sunk at the open amid the contradictory reports on June 26, 2018. The S&P/ASX200 index fell 16 points or 0.3 percent to 6,194.1 points as at June 26, 2018  before the market close. This trend followed the losses seen in the US indices. Primarily, the US saw a decline in the Dow Jones Industrial Average by 1.3 percent to 24,252 points; the S&P 500 moved to 2,717 points, down by 1.4 per cent; and the Nasdaq index fell to 2.1 per cent to 7,532 points. There was a heavy sell-off in tech space, however, the same appeared to be short-lived though as the tech stocks across the globe regained momentum the very next day of trading. However, risks from the trade war still loom and can impact investor sentiment, investment appetites and there could be second-order effects that can slow down the growth. A look at the ASX listed tech stocks in the past two days of trading reveals this back and forth momentum.

Altium Limited (ASX: ALU) is an information technology stock which fell around 4.2 percent to $23.17 as at June 26, 2018. The stock traded around $23.670 as at June 27, 2018 and slipped only by 0.46%. Coming to financials, the group had recorded 30% revenue growth with all regions and business segments delivering double-digit revenue growth for 1H FY18. China continued its rise and significance – delivering 30% revenue growth and expanding further by opening a new sales office in Shenzhen while Octopart continued to outperform through increased traffic and improved search experience delivering 42% revenue growth.

WiseTech Global Limited (ASX: WTC), another information technology stock which was down at $16.48 i.e. by 3.9 per cent as at June 26, 2018, was seen to trade at a market price of $16.760 and recovered with a daily price change of $0.430 and a percentage change of 2.6% as at June 27, 2018. The $100 million capital raise through shares to a global institutional investor by WiseTech had raised some concerns as the company already had a cash balance which was healthy. Nonetheless, the acquisition spree company might be into something that only time will unveil.

Appen Limited (ASX: APX) under information technology bracket, witnessed a fall to $13.04 in the early hours of June 26, 2018, down by 3.8 per cent. The stock traded at a market price of $13.46 as at June 27, 2018 and has been seen recovering with a daily price change of $0.25 and a percentage change of 1.89%. The group trades at a very high P/E multiple and is being compared to big tech stocks like Google across the globe. Appen has been able to maintain a strong balance sheet, with good cash at hand.

While these stocks are trading at high levels, the changing trends might bring in some volatility. However, if China is restricted in terms of US investments, then the domestic tech stocks might have a better prospect.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Should you stick around with this pot stock – AusCann (ASX: AC8)?

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When discussing about cannabis, many ASX listed pot stocks come into picture. One such stock that has done well in the past is AusCann Group Holdings Limited (ASX: AC8). AusCann Group is into manufacturing and cultivation, supply of medical cannabis products. The Company focuses on investigating opportunities in the medical cannabis sector, including acquisition or investment in other international plant breeders, producers and suppliers. They believe Australian patients have the right to access high quality, cost effective, cannabinoid medicines.

In an attempt to achieve this and to enhance the reach in market, AusCann snapped up an agreement with Australian Pharmaceutical Industries Limited (ASX:API). API is a well-known wholesaler of pharmaceutical products in Australia, and will help AC8 to enhance the distribution setup. Further, AusCann has a tie up with Tasmanian Alkaloids, and both the groups have been working on processes to produce final dosage form of cannabinoid pharmaceuticals that can be distributed into the domestic and international markets. AusCann is thus trying to scale up its existing medical liaison team with more emphasis on the educational programs being targeted for the doctors in cannabinoid medicine. The group’s joint venture in Chile has been on track with few harvesting updates.

Lately, AC8 bagged a research and development agreement with Canadian Group Jade Cannabis, which will help in the development and optimisation of the AusCann cannabis cultivation system. This news has come after the recent update from AC8 on completion of second harvest in Chile. Thus, the group is expediting its operations in all key jurisdictions.

AusCann (ASX: AC8) traded at a market price of $1.250 as at June 27, 2018 but was seen to be moving down by 3% on June 28, 2018 during early trading hours. It has seen a performance change of a staggering 236.84% over the past 12 months. The stock price changed from $0.360 as at June 26, 2017 to $1.280 as at June 26, 2018. The 52 weeks low for the stock has been $0.360 and 52 weeks high for the stock is $1.860. The company has an Earnings per share of -0.009 AUD. However, despite the boost in the cannabis sector with Canada moving an inch up on legalization of use of small amounts of cannabis for recreational purposes by adults and US FDA approving the first cannabis based drug, AC8 has fallen about 20.99% in last three months, as at June 27, 2018. This has been owing to the speculative future of cannabis. Along with AC8, many other pot stocks have also taken a back footing recently. Amidst this, AusCann was seen to surge up to more than 14 per cent to reach $1.23 after a big drop in the share price and large trading volumes when the news of the latest partnership broke.

For its Tasmanian facility, Canadian developed, state of the art, Argus Controls systems and Conviron cannabis are put in place to grow rooms. To support the cultivation operation, AusCann is developing a suite of proprietary advanced analytics. These analytics will be refined and deployed as part of the research engagement with Jade Cannabis. With expansion plans in Canada and Australia, and boost from the legalization of recreational cannabis in Canada, AC8 remains a stock to stick to at the current price of $ 1.235. While many pot stocks have emerged lately and are yet to report profits, the key to success would be resilient fundamentals and partnerships with a support from capabilities to explore global export opportunities. Looking at this, AusCann is one stock striving to achieve better performance despite the volatility in the sector.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Why market feels that Royal Commission is bad for bank equities?

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  • Public hearings of the Hayne royal commission seem to enforce lower leverage and simpler business models in the financial segment that may have an impact on equities
  • Return on Equities (ROE) coming close to cost of equity is worth looking at for investments

What makes the question particularly difficult is the four big banks – Australia and New Zealand Banking Group Limited (ASX: ANZ), National Australia Bank (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corporation (ASX: WBC) caught in the cross-hairs of the Hayne royal commission, and coming under increasing attack for poor behavior. Many analysts are concerned that bankers could respond to the findings of the Hayne royal commission by raising their lending standards, particularly in the critical home-loan market. The problem comes on the supply of bank credit which could put downward pressure on housing prices, and in turn could harm the balance sheets of Australian households – many of whom have loaded up on debt to buy homes and investment properties.

In terms of equity, March was a month of misery for the country’s big four banks as they watched their share prices tumble significantly. But the banks’ woes have left many investors wondering whether the sell-off means the big four are coming as an interesting investment opportunity. For example, if you have invested money in the Balanced Fund in Australia’s Super fund Industry, they put around a quarter of your money into Australian shares. That will include shares in the banks. So, when Australian stock prices fall, your super savings shrink a bit.

While we do feel that banks like ANZ and NAB do stand a chance to be grabbed at low levels, many other financial sector stocks still look to be sitting in the potholes. For example, AMP Ltd, which seems to be in gross breach of their code of conduct, portraying the fall-side of the sector’s operations. Staff are even asked to be nonpolitical in their work while Australians have been told for decades that they are fortunate for their highly profitable-but-stable and ethical financial institutions. However, the recent dents in the system take a toll on investors who seem to be changing their style of investing now.

The key thing to ponder about is the reputational damage but at the wake of the Royal Commission, new or evolving business models may take a prevalence. With an impact on the stockbroking industry as well, many are eying the upcoming annual Stockbrokers and Financial Advisers Association conference at Melbourne discussing the changing market infrastructure and dealing with some of the misconduct unveiled by the royal commission.

However, we also note that the return on equities with the challenges laid out for banks have reduced from about 15%-18% to 10%-12%, over the last few years, which now looks closer to the cost of equity. This deleveraging would stem down to the impact on returns to shareholders.

On the other hand, while Royal Commission might seem to bring the strings down, the latest relief in the rise of the yield on US 10-year Treasury note, has helped many investors sticking to equities, in general. Though we do feel bank dividends are under the claws of the latest investigations, but stocks like ANZ can still weigh over many given the capital position. ANZ has fallen about 3.8% in last six months but rose by 5.7% in one month with support from its decent financial update.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

Risks to Australia’s AAA credit rating

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Credit Ratings are generally ratings that are bestowed on an entity, which seeks to borrow some money for business requirements. This can also be done for governments to assess their creditworthiness and can help evaluate debt or financial obligations. It gives lenders an easy way of seeing how likely they are to get repaid. In doing so, credit rating agency like Standard & Poor’s (S&P), Moody’s, or Fitch come into picture. In general, ratings are provided under several grades and the scale has AAA as the highest rating down through to C, and rating below BB is deemed as junk.

As per the recent developments, the Australian government has pledged to deliver a small surplus in 2020/21, ending more than a decade of deficits that have threatened its top-notch credit rating. Both Moody’s and Fitch welcomed the government’s economic blueprint, adding the budget had no major impact on ratings. Australia is one of only 10 nations in the world with an AAA credit rating from the top three agencies. However, the recent update from S&P, which retains its negative outlook has given some jitters to the economic experts. The credit rating agency has highlighted that the substantial delay in fiscal repair, and the risk of further delay, ignites concerns about Australia’s ability to meet its objectives. In fact, low wage growth and inflation pose a downside risk to the government’s current projections.

Data showed Australian wage growth stuck at its slowest pace on record, while consumer sentiment faltered in May, putting a lid on consumer spending and a drag on the course of inflation. Last year, S&P already saw risks in the booming housing market, mainly in Sydney and Melbourne where median property prices nearly doubled since 2009. Though situation has reversed now, but risks in the housing market do hover around every now and then. At the same time, bank credit to households were seen jumping to a record high of 175 percent of gross domestic product (GDP) about one year ago. S&P sees the credit-to-GDP ratio climbing to 188 percent in 2020, and such rapid credit growth is said to lead to vulnerabilities from various perspectives, including financial, fiscal, and economic stability if the dynamic expansion experiences a sudden and unexpected slowdown.

Australia’s A$1.7 trillion economy has, in recent months, benefited from higher prices for iron ore, its top export earner. The economy grew at 2.4 percent in 2016, extending a run of 101 quarters without a recession. Last year, S&P expected headline GDP growth to be around 2.3 percent in 2017 and which was thought to accelerate to around its “potential growth rate” in the following years. That was lower than the government’s budget forecast of 2.75 percent in 2017/18 and strengthening to 3 percent through to 2020/21.

Thus, numerous uncertainties seem to be weighing on the credit rating while Australia’s possession of holding ‘AAA’ credit rating may also come under pressure from the Royal Commission into the financial system.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Why is it important to look at Return on Equity along with Dividends?

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When it comes to making good money from equities, a lot is being talked about dividend paying stocks and their growth trajectories. However, simply reading the financial numbers on yields of the company is not enough to understand the future potential and growth. An investor must know the reason behind the growth and other factors that can assist the organization to flourish further. There are multiple financial factors that need to be looked at before making any investing decision. Of which, Return on Equity (RoE) is the one that tells us about the profitability of the company in terms of profit generated from shareholders’ money. It is calculated by dividing Profit after tax (PAT) with average of shareholders’ equity. Profitability means that how much money a firm can earn after incurring all the expenses during the period.

The significance of RoE ratio relates to the firm’s ability to generate profits from the shareholder investment. Higher RoE ratio is better for shareholders as it implies that the company is increasing its ability to generate adequate profit without the need of higher capital and gives a positive outlook about the stock. It also indicates that how well the company’s management is deploying the shareholders’ capital into the firm. However, RoE does not represent risk associated with the return. In order to get this right, an organization may sometimes depend on debt to produce an extraordinary net benefit, which results in higher ROE. On the other hand, downward trend of RoE indicates that the company’s management is making a poor decision and is investing its capital in unrewarding assets.

Let’s understand the RoE derivation through an example – Australian Finance Group Ltd (ASX: AFG) generated $39.1 Mn of Profit after tax in FY17 and average shareholder equity amounted close to about $100 Mn then it’s RoE ratio as per the above formula comes at a value over 39 per cent. This represents the return that management is earning on shareholder equity, thus resulting into higher dividend payment; and it is worth noting that AFG’s dividend yield is around 6.89 per cent.

It should also be noted that ROE can help compare companies in the same sector to see which company can effectively use the cash for greater returns.

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Telecom Sector Stocks – Vocus and Telstra with ROE in last three years

Eventually, ROE is an important indicator used in evaluating a stock as it generally correlates well with dividend growth over time.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Crypto update: Where are Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC) heading to?

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As at April 03, 2018, Australia came up with the new legislation related to cryptocurrency exchanges and now Australian digital currency exchange business will be required to register and will have to comply with the anti-money laundering laws. Though demand for cryptocurrencies has gone down a bit lately but the exchanges that sell them still seem to be gaining traction.

Recently, it came into notice that Bitcoin was in trouble and saw its worst in terms of price history. Almost half of its price has been wiped off since the start of the year, but it is expected that world’s most popular cryptocurrency might make a comeback. It might look like that happy days are over, and its end is very much near, but investors are used to such types of crashes. The cryptocurrency network consists of diversified group of members but there are some specific groups which offer a great resource and support the crypto economy for an incentive. This is expected to revive the prices in future.

As seen lately, Cryptocurrencies have been very volatile; and post a day of rise, the currencies were seen to be falling down as at April 05, 2018. Bitcoin prices had fallen to US$6,909.45 per coin and were seen to be hovering below the $7000 level. Ethereum, a cryptocurrency with the second highest market capitalization was up to around US$404 but slipped back to US$384.84 per token. Litecoin (LTC) that recently touched US$125 per coin was also down to US$118.55 per coin. It was observed that Ethereum was gaining more popularity than Bitcoin in many regions including India, while Indian Government is still hostile towards cryptocurrency. On the other hand, it is still expected that the prices of Bitcoin and Ethereum will triple by the end of the year and their market cap will increase by nearly 212 per cent and by 194 per cent, respectively. The forecasted market cap is primarily driven by the applicability of network and by the growth of the initial coin offering. It is noteworthy that Bitcoin’s average daily turnover has been seen to be three times higher than Ethereum’s average daily turnover. Meanwhile, Litecoin recently planned its launch of LitePay which was earlier scheduled for February but got delayed at the last moment. LitePay is a payment-based solution which will help Litecoin users to accept the crypto easily and it is also planning to launch LTC-funded debit card that will allow its users to spend on any business virtually.

While the riding path looks topsy-turvy as of now, a close eye on the movements would be key to see whether or not the forecasted bull run is on the cards by the year end.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Are penny stocks a waste of money?

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Penny stocks are generally the ones that are famous for providing promising returns and tremendous growth over time and add to the investment diversification strategy. Valued generally at a price less than a dollar, the penny stocks have low market capitalisation which varies between $50 million and $300 million. However, the flipside with these stocks is that the risk is equally high, and an iota of a negative news can bring the stock down significantly. Nonetheless, investors looking for good returns do consider investing in penny stocks listed on ASX to make good money.

Trading in such small cap and low-priced stocks, projects growth due to the volatile nature of the market that fosters seasonality periods. However, one should have reliable information and proper strategy while investing in such stocks and choosing the ones that are quite attractive to give a good bounce to the portfolio needs a lot of research. It is also worth noting that small cap companies are usually start-ups with limited resources and small amount of net tangible assets as compared to blue-chip companies which are very much stable, and therefore the risk in investing in small companies is also proportionally high.

Few exemplary penny stocks include the likes of Battery Minerals Ltd (ASX: BAT) which has been up about 19% in last six months while the recent market volatility is making the stock drop (down 8.6% on April 03, 2018). Emeco Holdings Ltd (ASX: EHL) is another player that has gone up about 55.3% in last six months and was last trading at 28.5 cents as on April 03, 2018. Though these stocks are speculative and exposed to some market and operational risks, the stocks do have a decent growth potential based on their accelerated efforts. Thus, one can equate Penny stocks to lottery tickets which can help in converting small amount of money into massive returns.

Penny stocks are generally seen to witness sinusoidal movements with announcements made by the companies which can quickly impact the growth profile. These are high-risk investments and the prices get diluted with sudden selling in the market. Thus, if one doesn’t pay attention and fails to make an appropriate move given the volatile nature of the market, one can go penniless. While one sect of the market says that investing your hard-earned money in penny stocks can be a waste, the other says that invest in penny stocks if you hardly have any money or you want to build a huge pile of money. Nonetheless, one may want to bet depending on the risk appetite, but the real value of penny stocks needs to be estimated after looking into the financial reports, growth catalysts, historical performance, if available, and market scenario.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Are Lithium Stocks Still in Demand?

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Australia is one of the leading lithium producers amongst eight countries and contributes significantly to the global production. There are two major resources producing Lithium and are either brine-based deposits or hard-rock mineral deposits. It is to understand that brine-based lithium can be used directly in end-markets, while hard-rock lithium concentrates need to be refined further before use in the end market.

The most recent uplift in demand for lithium-ion batteries has been associated with the rise in demand of electric vehicles because they are rechargeable in nature. In this regard, Lithium-ion is noted to move from the negative electrode to the positive electrode during discharge and has the potentiality to move back again when recharged. Over the years, most of the countries like Paris, Mexico, and India, etc. are moving towards electric vehicles because the Government wants to reduce pollution in their respective regions and reduce the dependency on fossil fuels. For that, the Government is pushing EV industry by providing incentive schemes which will support the demand of lithium in the years ahead. Then, countries like China are aiming to thrive on lithium battery for various uses. It has been forecasted that Electric buses are will cover half of the world fleet by 2025 and this will be triple within seven years and most of them will be in China. The total number of electric buses in services has been estimated to be about 1.2 million in 2025, up from 386,000 reported last year and this is equivalent to ~ 47% of the worldwide city bus fleet. Given these trends, end consumer behaviour is bending towards electric vehicles, and thus the market seems to be having an interest in stocks in lithium sector. Lithium-ion batteries have been estimated to make up 35% of total use of mined lithium worldwide. The significant usage for lithium has been into rechargeable batteries for mobile phones, laptop, digital camera and electric vehicles. Moreover, it has also been used in lubricant greases, glass, ceramic glazes and health products.

In the beginning of 2018, the speculation that lithium prices are set to fall given the demand-supply scenario being shaken up, led the lithium stock prices fall quite a bit after soaring significantly in 2017. During 2006-2016, the lithium prices have doubled to $6,000 per ton from $3,000 per ton.

Taking the current scenario with a pinch of salt, many investors have raised concerns over the stocks in lithium sector. Nonetheless, lithium is a precious commodity, and most of the reserves still do not contain enough amount of lithium for commercial use and some of them don’t even produce sufficient high-grade lithium for batteries. Therefore, key lithium companies with innovative solutions, healthy fundamentals, and implementing strategic moves including alliances and joint ventures (JV) with the technology companies to ensure reliable, regular supply of lithium compound to battery industries and vehicle manufacturers, are being assessed from investment standpoint. Moreover, many government bodies and agencies are taking preventive measure against unfair advantage in the lithium battery rat race. One such move has been taken by Chile’s development agency, Corfo, who has requested Chile’s antitrust regulators to reject the selling of Nutrien’s stake in Sociedad Quimica y Minera de Chile (NYSE:SQM) to China’s Tianqi Lithium on the grounds that it would give China an unfair advantage in terms of the competition to have resources to develop electric vehicles.

Coming to lithium production scenario, as per the US Geological Survey, Worldwide lithium production improved by around 13% to 43,000 tons in 2017 from 38,000 tons in 2016 on the back of increased lithium demand for battery applications. In 2017, lithium production in Australia registered growth of ~ 33.6% to 18,700 tons with new Spodumene operations coming on-line and ramping up production of concentrate.

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World Mine Production and Reserves (Source: U.S. Geological Survey)

While the world is moving towards zero emission, the battery storage will be crucial for energy demand, and thus the outlook for lithium pricing can be expected to stay positive in medium term.

Given this interplay of supply -demand scenario and other macro factors, a look at the ASX lithium stocks points to up and down movements given the changing lithium paradigm. In the last six months, stocks for the lithium miners such as Minerals Resources Ltd (ASX: MIN), Orocobre Ltd (ASX: ORE), and Galaxy Resources Ltd (ASX: GXY) have spiked up 14.23%, 39.05%, and 35.5%, respectively, as on March 26, 2018. However, with supply expected to flood the market, the stocks have been touching the ground with a respective slip of about 17.22%, 16.01%, and 16.11%, as noted in the last three months. However, we need to be mindful of the fact that the lithium demand is still decent with acceleration in the EV market. Thus, the success of lithium miners will hinge on production capacity, strategic long-term alliance and other developments such as expanding exploration capability, and healthy fundamentals. For instance, GXY’s Mt Cattlin project is a fundamentally strong project capable of yielding cash benefits. With this backdrop, the scenario for lithium sector is worth a watch.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

One Blue-Chip Miner with Significant Exposure to Global Resources – BHP Billiton Limited

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Listed separately on different stock exchanges, BHP Billiton Limited (ASX: BHP) is already known as a global resource giant based on its exposure level. Incorporated in late 1800s, BHP Limited later-on in 2001, became BHP Billiton Limited post-merger with Billiton Plc. Then in 2017, some of the Billiton assets were rebranded as South32. The headquarter of the company is situated in Melbourne, Australia and is being currently looked after by Mr. Ken MacKenzie –the chairman.

BHP is one of the leading producers of natural resources in the world. The company has four main verticals i.e., Petroleum, Copper, Iron ore and Coal which contribute significantly to the total revenue and earnings. The company exports its product mix portfolio to Europe, China, Japan, India, South Korea, North America, South America, Rest of Asia and Rest of the world. On geographic front, the company generates a large proportion of sales from its export market while remaining comes from domestic market. Of which, Asia region contributes to the maximum of total overseas sales with key contribution from China region. Further, emerging Asia is expected to drive long-term steel demand, with structural reform in China to support demand for quality ore. Currently, the company has more than 3000 machines which include 1300 trucks, nearly 400 loaders, 450 dozers, 240 drills and 200 excavators. BHP Billiton Ltd has workforce strength of over 60,000 employees and contractors are working across 87 locations of the globe.

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Balanced contribution across Portfolio as per Interim FY18 Result (Source: Company Reports)

Recently, the group reported about launch of new Indigenous land management collaboration across Australia’s desert country at Old Parliament House in Canberra. The 10 Desert Projects led by Desert Support Services (DSS) and enabled by the BHP Billiton Foundation will build the capacity of Indigenous groups to look after country for a range of economic, social, cultural and environmental outcomes.

During 1HFY18, the Group recorded revenue at $21,779 Mn against $18,796 Mn in 1HFY17, marking a growth of 15.9% on a year on year (YoY) basis at the back of mixed products growth and pick up in commodity prices. The company had free cash flow of $4.9 Bn in 1HFY18 and will use this cash to further reduce its debt and increase returns to shareholders through higher dividends. Underlying return on Capital Employed was 12.8%, up as compared to 1HFY17 and a further improvement is expected in future.

Moreover, the company has been paying regular dividends which reflects the sound financial health of the business. Also, BHP Billiton has shown the ability to produce positive cash flows even under tough market conditions on the strength of its wider market reach which enables the company to withstand the competition. Besides this, the Company has got an opportunity in terms of debottlenecking of existing mines, rig, port, rail and processing facilities. With this, the company will be able to produce more from existing infrastructure at lower cost. The company is on track to deliver productivity gains of $2 Bn by end of 2019 on the back of improved operating and capital productivity, aided by state-of-the art technology across the value chain.

Over the period, the group has been able to substantially reduce its unit costs by more than 40% at Australian mining operations over the last five years. It reduced unit cost by 4.0% in 2017 which helped to record decent EBITDA margin. The management further aims at cutting unit costs by ~10.0% in the medium-term. This move will be supported by diversified portfolio, standardized systems and greater connectivity across the assets and commodities. The giant miner is expected to sustain its growth momentum fuelled by increased production and driven by expansion plans. Its balance sheet position with debt reduction plan and cash flow scenario with healthy operating margin make it a valuable global miner.

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Delivering consistently (Source: Company Reports)


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Labor Takes A Step Back On Banning The Benefits Emerging From Franking Credits

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While the daily hustle bustle with market volatility has been troubling investors in Australia, the recent jolt came in when Labor proposed to ban the benefits of franking credits under which shareholders will not be able to receive the refund from the Tax Authorities when their franking credits are higher than the actual tax they pay. This though hinges on the election of the labor in the next federal round, the move was indicated to attain a saving of about $5.6 billion in its first year of change and of about $59 billion over the decade. The proposal led to a wave of unrest among 300,000 of the retired people who belong to low income background and depend upon the cash refunds for their livelihood.

However, in a further statement, Labor leader Bill Shorten announced that it intends to exempt the low-income pensioners, who will be able to continue enjoying the benefit of receiving the cash refunds. The party has further mentioned that self-managed superannuation funds with at least one pensioner or allowance recipient before March 28, 2018 will also be exempt from the changes, and thus every pensioner will still be able to benefit from cash refunds. This, of course, would lower the saving that was expected earlier.

Labor thus seemed to have tweaked the stance a bit considering that about 14,000 of full-rate age pensioners, 200,000 of the part-time pensioners, super funds and self-funded retirees will be affected by the changes in the dividend imputation policy. Sentiments of the people were seen to be hurt as the earlier proposed plan started to shake common man’s confidence with regards to financial plans for their retirement. Particularly, market estimates that the changes on implementation can impact the after-tax returns for the individuals who have share portfolio of about $500,000 to decline by 132 basis points on an assumption if the portfolio earns a net yield of 4 per cent. Further, annual returns of self-managed super funds will reduce by 171 basis points under the same assumption.

The policy of scrapping the franking credits was criticised by the Government on the grounds that pensioners and retirees who are totally dependent on the cash rebates which are attached to the company’s dividends, will be deeply impacted. While it is hard to say that Labor party’s retreat on this cash refund banning might help in vouching for extra votes, the whole scenario has not gone too well with the investors. As a result, high yielding stocks like Telstra and National Australia Bank Ltd. have been seen to feel the brunt of this development.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Dividends in the Australian Banking Sector

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A composite image of signage of Australia's 'big four' banks ANZ, Westpac, the Commonwealth Bank (CBA) and the National Australia Bank (NAB) signage in Sydney, Friday, Oct. 23, 2015. (AAP Image/Joel Carrett) NO ARCHIVING

It’s very hard to talk about dividends in Australian market without talking about banks. The increase in dividend distributions over the past decade has been primarily driven by the banking sector. Australian listed companies have demonstrated immense strength in terms of dividend growth since the global financial crisis and banks have been key contributors to the hefty payments. Australia ranks amongst the top equity markets in the world that pay good dividends, and about 70 per cent of the dividend in Australia comes from the financial sector. The big 4 banks in Australia have thus been among the top dividend-payers, as seen consistently over the years. Given that dividends support the compounding of returns over time and form a major part of a portfolio return, the banking sector in Australia has been doing its bit to provide good returns to the investors.

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Dividend contribution of various sectors in past years (Source: ASX Reports)

For instance, National Australia Bank Limited (ASX: NAB), which provides financial services in Australia, New Zealand, Asia and in the United States; has an appealing yield of 6.88 per cent and the bank paid a final dividend of 99 cents (fully franked) for 2017, which was unchanged from the 2017 interim dividend and from last year’s dividend. There were fluctuations in the yield over the last ten years and the dividends per share have increased over the period, while noted to be steady over the last four years. It maintains its dividend pay-out ratio that is around 80 percent and had reported a dividend pay-out ratio of 80.8 per cent in 2016 and 79.4 per cent in 2017.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Australia’s Q4 GDP Growth Erodes!

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The recent fears on the US metal tariffs are seen to be diluting a bit with many regions including Canada and Mexico being considered for exclusion from the tariffs as the US seems to be softening its stance on neighboring countries. On the other hand, Australia’s GDP data has come under spotlight at the domestic front.

The Australian economy in the fourth quarter ending December 2017 has witnessed a GDP (Gross Domestic Product) growth of a meagre 0.4 percent, which is below the market consensus of a 0.6 percent growth. This has been quite discouraging to see after an upwardly revised 0.7 percent growth of the third quarter. The fourth quarter GDP reflects the weakest growth rate since a contraction in the September quarter 2016. The Australian economy has expanded due to the strong contributions mainly from final consumption expenditure while non-dwelling construction and net trade reflected a downward effect. Further, on year-on-year basis, GDP has grown 2.4 percent in the fourth quarter, which is below the 2.5 percent growth forecast, and at a slower rate than the 2.8 percent pace posted in the previous quarter.

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GDP Growth Rates (Source: Australian Bureau of Statistics)

 Moreover, GDP in the fourth quarter got affected from a fall of net exports. The exports of goods and services fell by 1.8 percent, while the imports of goods and services rose by only 0.5 percent. The exports of goods fell mainly due to the 9.7 percent fall in the rural exports percent. The economy also witnessed 1.9 percent fall in the exports of services. Meanwhile, the imports of goods rose by 1.6 percent, due to a 4.7 percent rise in consumption of goods and 4.4 percent rise in intermediate goods, while the imports of services fell by 2.7 percent. On the other hand, Australia has recorded a trade surplus of $1.1 billion in the month of January with exports rising by 4 percent and imports falling by 2 percent.

In the fourth quarter 2017, the household consumption rebounded to 1.0 percent over the quarter due to a higher discretionary spending in hotels, cafes and restaurants with 2.9 percent and 2 percent rise in recreation and culture. On the other hand, the saving rate has now fallen to a new low, after the downward revisions, of 2.7 percent, which means that the consumption will not increase for much longer time without a continued strong jobs growth. The wage growth was lower than the 1.2 percent rate seen in the third quarter, and the average compensation per employee fell to zero over the quarter, not in line with the trends of last two years. Furthermore, the productivity growth remained muted with GDP per hour worked falling by 0.1 percent in 2017.

 The fourth quarter also witnessed 1.2 percent fall in the gross fixed capital formation as the private investment fell by 2.2 percent, partly due to 8 percent fall in the non-dwelling construction. However, the public investment increased by 2.9 percent in the December quarter, driven by 1.9 percent rise in state and local general government as assets were transferred from the private sector. Further, the investment in machinery and equipment grew by 3.3 percent in Q4 2017.

In addition, the production chain volume trends were mixed during the December quarter 2017 with mining growing 1.3 percent, construction expanding by 0.3 percent, information, media, telecommunications growing by 2.9 percent, while financial, insurance services grew by 0.1 percent, and healthcare and social assistance rose by 1.9 percent. However, during the period, agriculture, forestry and fishing fell by 2.7 percent, manufacturing fell by 1 percent and electricity, gas, water and waste services fell by 0.8 percent.

 Overall, the picture depicts some bit of deterioration in the living standards and productivity growth that has tarnished the so called ‘Australia’s improving economic scenario’.


 

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Favourable Commodity Price Movement – What this means for Key ASX Stocks?

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With improvement in global economy, the commodity prices are again moving on a favourable trend. The resource landscape is gathering more traction as investors are running away from some weakness in the banking sector with interest rates’ hikes taking a centre-stage at the global front.

Amidst this scenario, copper stocks are coming into limelight with copper price being driven by higher imports to China (13% up from December 2017 to 314,525 tonnes in January 2018) and strong economic data projecting a robust demand scenario. It is worth noting that benchmark three-month copper on the London Metal Exchange closed 0.2% up at $US7110 a tonne, which is close to the recent four-year high of $US7312.50. Similarly, nickel imports had doubled to 26,691 tonnes at the back of need of the metal in steel industry and rise in Chinese steel futures. Overall, riskier assets are being preferred with the equity markets’ resurrection across the globe.

Given the encouraging commodity scenario, iron ore joined the bandwagon and rallied to a 10-month high on the possibility of extension of steel supply curbs in China beyond winter. The spot price for benchmark 62% content ore moved up 1.1% to $79.65 a ton as on February 26, 2018. This seem to have benefitted iron ore players including RIO Tinto Ltd (up 1.3%) and BHP Billiton Ltd (up 0.8%) on February 27, 2018.

It will be crucial to see whether this rally runs out of steam with China changing its focus to services from heavy industrial sectors. While it will be crucial to see the developments, the investors can punt on resources stocks with strong fundamentals.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

 

 

Low wage growth – A big cause of worry for Australia’s interest rate scenario!

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Reserve Bank of Australia seems to have raised its hands when it comes to interest rate hike looking at the sluggish wage growth. The intend is to deliver a boost to households to take off the mounting debt burden. Since August 2016, the cash rate has been maintained at 1.5 per cent and this has been defined as the most sustained period of the policy inaction since the early 1990s when the bank first introduced its 2-3 per cent inflation target.

While the central bank expects a gradual move towards the rise in inflation in relation to the improving outlook for global and domestic economy, jobless rate has again seen a downside and reached to 5.5 per cent at the back of low cost of the money. This has kept inflation from falling further below the bottom of the target band. Growth in consumption also puts forth some level of risk if household income growth were to increase by less than expected. What is alarming is that despite an improvement in labour market conditions, wages growth has remained subdued. Growth in the wage price Index in September Quarter was at lower side as expected and wage growth outcomes associated with the new enterprise agreements had been lower than the percentage increase that was incorporated in the agreements which they were replacing. On the other hand, with strengthening demand for labour, wage growth might increase by more than the anticipated levels.

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Wage Growth across Industries (Source: Australian Bureau of Statistics)

According to the Australian Bureau of Statistics, wage price index in the December Quarter witnessed wages rising just by 0.5 per cent from the previous three months and by 2 per cent from a year earlier which is materially below the wage growth rate that is 3.5 per cent as forecasted by the Reserve Bank. Market already expected a quarterly gain of 0.5 per cent based on the steady rate on yearly basis that is 2 per cent. The wage growth increased by 2.4 per cent over the year after a seasonal adjustment for public sector and there was a growth of 1.9 per cent in wage growth of private sector. From a quarterly perspective, public sector wages grew by 0.6 per cent on seasonally adjusted basis and up by 0.5 per cent for private sector.

Overall, an improvement in wage growth seems to be happening at a lower than expected pace and this can take few years to get back to 3 per cent level. This, however, does reflect a weak inflation rate and makes it difficult for RBA to justify higher interest rates. Uncertainty that looms around household consumption can take some time to get settled while business conditions along with public infrastructure spending have been supporting the economy.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

Is RBA more relaxed when it comes to interest rate hikes in Australia?

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The Reserve Bank of Australia has recently dismissed a chance of rate hike any time soon after a period of financial turmoil. This has found relation to emerging fears of inflation and the mountain of household debt. The recent market volatility is not expected to have any significant impact on the growth outlook for Australia and the rates in Australia do not need to “move in lock-step” while the United States might have a different stance on interest rate hikes.

RBA has highlighted in the past that there is a need to return to a federal surplus to build a buffer to deal with a future economic shock. It is expected that a lift in wage growth is likely to be necessary for inflation to average around the midpoint of the 2-3 per cent medium-term inflation target, in order to have a stronger sense of shared prosperity. Many investors had been working under the false assumption that unusually low inflation and unusually low volatility in asset prices would persist even with above-trend growth at a time of low unemployment. Further, annual wage growth needs to be accelerating to around 3.5 per cent from the current 2 per cent in order to improve the scenario. Meanwhile, the recent upturn in the economy has boosted the domestic outlook with better employment gains and retail sales.

In view of the interplay among the above factors, RBA has left the cash rate on hold at 1.5 per cent during its recent meeting. As the jobless rate was at 5.4 per cent which is around 0.5 percentage that is a point above the RBA full employment rate, so most economists and financial markets don’t expect a rate hike before the middle of the year. According to the financial market pricing, there is a chance that the rates might hike in May by about 4 per cent. However, this can only find support from improving employment rates, wages growth and inflation scenario. On the other hand, some believe that the interest rates may only pick up next year.

While GDP growth is forecasted to average a bit above 3 percent over the next couple of years, the central bank would need to be cautious in terms of interest rate hiking given the above backdrop while threat from rising Australian dollar also infuses weakness in economic outlook.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Is the Crypto-mania ending soon?

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Friday marked a slamming on cryptocurrencies with about $100 billion being wiped off from the global cryptocurrency market in a span of just 24 hours at the back of major selling. Bitcoin price plunged by over 15% to slide below $9,000. The digital currency saw a turbulent trading in 2018 year to date, whereas in 2017, Bitcoin saw its price rising by more than 1500% from the beginning of the year. This dip over the past months was partly due to the crash in the prices of the commodity and lack of regulation. Many countries including India have joined China demonstrating the hesitance towards use of Cryptocurrency, while South Korea aimed at regulating Bitcoin and similar currencies such as Ripple and Ethereal. It is expected that there will be more of such protectionist regulation which will strain Bitcoin price that may even drop further. In addition, concerns that bitcoin price was manipulated on a major exchange called Bitfinex have sparked the downswing. Other digital currencies including Ethereum and Ripple witnessed the price fall as well. The recent hype is further masked by Facebook announcing its intent to ban ads on its site.

Looking at the past one year, Bitcoin, Ethereum and Ripple have grown by 1600%, 11,200% and 28,700%, respectively. Then, Cyder was launched as a sandbox for cryptocurrency developers whereas RussiaCoin is on a similar line of popular Litecoin and Doecoin currencies. There are various other currencies like The Swap Token coin and this one has been associated with programs with some interesting names like Ponzi and Troll payment. Ignis was also launched and its initial price turned to be a bit steep but on the other hand its twin currency, the Ardor coin, soared in December 2017.

The cryptocurrencies are seen to be linked to annual returns as high as over 3500% in the past while the stock market returns are much lower. Thus, the investors betting on cryptocurrency can make huge returns when the pendulum swings to a high level, which does not seem to hold good at the moment. The key thing to note is that Blockchain is the infrastructure that virtual coins are built on and it is responsible for recording all the transactions digitally.

Now from this New Year, cryptocurrencies seem to undergo some stabilization. Bitcoin has traded in a roughly $4,800 range throughout last few days and Ripple was at high and almost double its low. Lately, we could see that Bitcoin came very close to losing half of its value as seen for Ethereum. Ripple also lost three-quarters of its value from peak to trough. Litecoin also saw a significant loss. Moreover, the magnitude of these price falls had a powerful impact on the market cap with Bitcoin losing around $137.5 billion of market cap and whereas Ethereum lost approximately $63.3 billion of market cap.

On the other hand, it is expected that in 2018, cryptocurrencies like bitcoin might be utilized for international trade on a moderate basis. In effect, all the big G7 central banks are said to take the help of external fund managers to invest in cryptocurrencies. But still investors are hesitent to put money in the digital currencies and they still look for the stocks which deal with the principle technology.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Sydney, Melbourne house prices on downswing along with construction dwindling below expectations!

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January data for Sydney and Melbourne house price revealed continuation of the fall in prices (as per figures provided from CoreLogic). Particularly, there has been a 0.9 per cent fall in Sydney while Melbourne house prices were still slightly better off with just a 0.2 per cent fall. The Sydney scenario now contrasts with the highest level witnessed in July 2017. All in all, Sydney’s annual price growth to the end of January was about 1.3 per cent while Melbourne’s annual return was 8 per cent. It is being reasoned out that tighter rules on investment lending are leading to the downswing in house prices in Sydney. Leaving the capital cities aside, growth seems to be picking up in regional markets.

In conjunction to these falls, volatility in high-rise construction was witnessed. Particularly, Australian Bureau of Statistics (ABS) revealed lower than expected new building approvals. Dwelling approvals plunged by 20 per cent in December in seasonally adjusted terms, owing to fall in private dwellings excluding houses. In trend terms, number of dwellings approved fell 1.7 per cent in December 2017, continuing the fall for three months, while approvals for private sector houses fell 0.2 per cent in December.

Dwelling approvals decreased in December in the Australian Capital Territory (35.0 per cent), the Northern Territory (12.9 per cent), New South Wales (5.6 per cent), South Australia (2.4 per cent), Western Australia (1.3 per cent) and Queensland (0.8 per cent), as opposed to Tasmania and Victoria that witnessed a rise of 3.1 per cent and 2.5 per cent, respectively, in trend terms.

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Dwelling units approved and Private Sector Houses Approved (Source: ABS)

The dwelling approvals seem to be trending in contrast to what was seen in October and November last year.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Are lithium stocks tipped to lose their charm in 2018 and beyond?

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With recent speculation on the global lithium prices under risk at the back of supply now expected to meet and then outstrip the demand scenario, ASX listed lithium stocks seem to bear the brunt of the macro picture. The situation has worsened with the news that sector’s biggest producers, Chile-based Sociedad Quimica y Minera de Chile (SQM) which has reached a settlement with Chile’s development agency with regards to production enhancement, is now expected to increase the production level from 63,000 tonnes of lithium carbonate in 2019 to 163,000 tonnes by 2024. SQM stock which was hammered by the supply issues for the mineral has, in fact been, bought by key broking and investment firms post the update.

On the other hand, the stocks that otherwise were tipped for momentum owing to growth in electric vehicles market, are seen to come under pressure as investors are making profits post the strong gains that have been witnessed for many lithium producers in 2017, and in anticipation of weakening commodity sentiments. Nonetheless, it is important to note that the lithium miners may also be setting in place some form of strategy with levers to manage production costs and supply scenario. Further, the terms for offtake contracts might play an immense role in deciding the future approach given the changing lithium landscape. It is also key to note that market experts are tipping that SQM’s additional volume increases will not impact the market until 2020, while there is a possibility that market starts balancing by late 2018.

As per few market experts, 2025 lithium price forecast has been reduced to $8,500 per metric ton from $10,000 per metric ton while near-term price forecast has been increased to $11,000 per metric ton through 2020 at the back greenfield expansions supporting undersupply and brownfield expansions taking 3 to 5 years for ramping up. There is a possibility that low-cost spodumene producers in Australia might be in focus over the high-cost operations in Europe and China given SQM’s latest update, and the long-term scenario might also be timed with SQM’s additional production coming online post 2022.

Meanwhile, Galaxy Resources Limited (ASX: GXY) was seen to plunge by 7.4% on January 19, 2018 while Pilbara Minerals Ltd (ASX: PLS) slipped by 1.5% along with Mineral Resources Limited (ASX: MIN) that was knocked down by 6.6%. Altura Mining Ltd (ASX: AJM) was seen to plunge by 8%.

In fact, this movement comes along with the recent announcements from Orocobre Limited (ORE down 9.6% on January 19, 2018) on significant production enhancement, fund raising and CAU15 drilling results. ORE had planned to accelerate a larger phase 2 expansion of the Olaroz lithium facility in Argentina, by adding 25,000 tonnes per annum of lithium carbonate production capacity, which will take Olaroz’s total production capacity to 42,500 tonnes per annum. The commissioning of the expansion is expected in the December half of CY2019. The phase 2 expansion capital expenditure will be funded through a $361 million capital raising. The company has raised $34 million through the Institutional Entitlement Offer and expects to raise funds of approximately $45 million through Retail Entitlement Offer. Rest $282 million will be raised through strategic placement to Toyota Tsusho Corporation. On the other hand, ORE in an update on the brine sampling of diamond drill hole CAU15 in the Cauchari JV property, confirmed that the NW Sector contains relatively high drainable porosity and permeability south from CAU07 through CAU16 to CAU15.

Given the end-use market scenario, we still believe that the key lithium stocks sitting on better mine performances with secured off-take agreements have the potential. Some might even witness an entry opportunity given the share price dip and near-term prospects as supply-demand scenario might not change immediately. Thus, it is worth to watch this space closely for any further developments while we maintain our hold position in GXY, PLS and ORE at the moment (as at January 19, 2018), with the result reporting season also around the corner.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Commodity Prices Drag Miners while Consumer Sentiment Pulls the Strings Up

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On January 17, 2018, we saw ASX trending lower owing to miners that were a drag with iron ore slipping low and tipped for a downfall to $50 a metric ton. This picture has been laid down by market experts given the piling supplies at ports with China, the top importer of the commodity slowing down in terms of growth. The market is strong in its view on a bearish commodity scenario building up at the back of near-term sell-off, with recovery expected in second half of the year after a steep fall. The scenario is further weighed towards lower mill profitability in China.

Not just the iron ore, base metals were seen to be on the slipping side as copper and nickel touched low levels while US dollar strengthened a bit. Copper on the London Metal Exchange was down 1.8% at $US7,078 a tonne while nickel plunged 2.4% at $US12,550.

Overall, miners were seen on the losing side with BHP Billiton plunging 2.9%, Rio Tinto dropping by 3.5%, and South32 slipping by 1.5%. Even Lithium Miners touched low levels with Galaxy Resources plunging by about 4.5%.

On the other hand, and on a positive side, Australian consumer sentiment was reported to be again up in January post the December rise and touched the highest level in four years. The data from the Melbourne Institute and Westpac Bank survey indicated that index of consumer sentiment has been up 1.8% in January from December and is indicative of an emerging trend that households are now seen to be on a spending spree with a positive view on economic state given the interest rates and job statistics. This seems to change the long-lasting trend reaching its peak in 2017 September quarter; and along with improving retail sales, sets a better outlook for next few years.


 Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Copper’s Bullish Tone Continuing in 2018

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With increased consumption, prices of copper have been rising-up lately, and the metal was seen to be trading above $3.281 (US/lb), which is up from $2.490 seen last year. Moreover, in the past one month the share prices of copper increased significantly. Copper has hit its highest point in more than a month which has been in line with the rising demand in China (that accounts for about half of global copper demand). Recently, Congo’s minister for mining ordered a joint venture of Chinese investors to cease exporting raw copper and cobalt before processing because they have a low value in the international markets, and this will help in boosting the price of the copper.

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Copper Belt with Good Deposits (Source: XAM Company Reports)

In the recent times, copper companies’ share prices have climbed up, for instance, share price of Xanadu Mines Ltd (XAM) which is a copper and gold exploration company went up about 40% in the past one year. Another copper company is Oz Minerals Ltd (OZL) whose share price also rose from $8.07 to $9.16 in last one year. The group is working on its copper gold mine project in terms of expansion. Avanco Resources Ltd has also moved significantly in past one year. Most of the copper companies have increased their dividend pay-out which are generally fully-franked. One of the strongest stock to leverage from the scenario is BHP Billiton Ltd (BHP) whose prices have increased by about 16% in last one year, and the group controls Escondida in Chile, which is the world’s largest copper mine. Australia holds a good chunk of the world’s copper resources after Chile and the recent scenario seems to be an encouraging one for future trends.

The trend seen in late last year has also continued in the new year with London copper surging up on January 02, 2018 with demand in top consumer China expected to be on an improving side in 2018. Thus, prices in the new year are expected to keep up the pace set at four-year highs. Three-months’ copper on the London Metal Exchange surged 0.3% to $7,267.50 a tonne. Market expects copper prices to average $7,280 per tonne in 2018 and $7,720 per tonne in 2019. The support is seen to come from rising infrastructure demand in developing countries and use of electric vehicles (EVs, which need copper in batteries and motors) and renewable energy on the upswing.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

2 Things on latest Australian Job Data

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Supporting the Reserve Bank of Australia’s optimistic view on improving economic scenario, unemployment data is out with the jobless rate or so called ‘unemployment rate’ remaining steady at 5.4 per cent in November 2017, against the October result. This maintains unemployment at the lowest level since February 2013, and has given the financial market a reason to stay positive. Australian dollar edged a little up shortly after the release of the data.

Rise in employment: On trend estimates, employment has risen by 22,200 to 12,380,100 while unemployment decreased 2,900 to 707,300. In seasonally adjusted terms, the employment increased by 61,600 to 12,403,000 while full-time employment increased 41,900 to 8,501,900 and part-time employment increased 19,700 to 3,901,100. However, unemployment increased 4,100 to 707,700. The participation rate under trend estimates increased less than 0.1 pts to 65.4 per cent and monthly hours worked in all jobs increased by 0.2 per cent to 1,734.4 million hours. On the other hand, participation rate increased 0.3 pts to 65.5 per cent while monthly hours worked in all jobs rose 0.6 per cent under seasonally adjusted terms.

Overall, trend employment has increased over the past one year, and the trend series flattens the volatile seasonally adjusted estimates to better depict the underlying behaviour of the labour market. With Queensland on top, increases in employment were observed in all states and territories except Northern Territory under trend estimates. In seasonally adjusted terms, the largest increase in employment was seen in Victoria.

Drop in underutilisation: It is worth noting that the quarterly number for underutilisation rate decreased by 0.3 pts to 13.8 per cent under trend estimates and by 0.3 pts to 13.7 per cent for seasonally adjusted estimates.

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Unemployment, Underemployment and Underutilisation Rates (Source: Australian Bureau of Statistics)


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Is Australia vulnerable to higher risk than Canada on Real Estate?

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Australia and Canada have been highlighted as two countries having many similarities when it comes to real estate scenario as both the countries have record housing debt and prices in their major cities are mounting high. Canada’s Vancouver and Toronto are particularly equated to Sydney and Melbourne with sparking high prices while the trend is reversing a bit lately in Australia.

Both the nations use a different approach for selling the property – like in Australia, the process is more transparent as bidding war takes the form of open auction; while in Canada, bids are kept secret. However, Australia is more debt prone than Canada as it constitutes about 122 per cent of Canada’s annual economic output which is more than two and a half times what it was at the start of 1990s. On the other hand, Canada’s household debt is 101 per cent of GDP. The correlation between prices of houses, high indebtedness and a future economic recession is extremely high. In Australia, interest rates are very low but still people are facing large interest bills leading to weak consumer spending power whereas Canada tends to have fixed-rate mortgages. It was reported that around 80 per cent of Australian mortgages were carrying variable interest rates, which is risky, against Canada’s fixed rate mortgages scenario.

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House Price Growth (Source: ANZ Research)

During global financial risks, many large banks are typically seen to be failing and will be bailed out if a housing market crash leads to large losses, and thus the picture would be little different in two counties. It is also worth noting that Canada also has a national agency, CMHC (Canada Mortgage and Housing Corporation), which runs housing programs and provides policy advise whereas Australia has no such body. However, in Canada banks allow to undergo mortgage insurance on all low-deposit home loans. CMHC also has a dominant control over selling Canadian residential mortgage backed securities, which are a key source for funding home loans. So now both the countries are tackling their housing issues in different ways, but they also have used some common approaches like both have tightened the standards with improved lending requirements, both have also put special taxes on foreign buyers of residential property and increased stamp duties in Australia.

However, both the countries lack some sort of coordination in housing policy. But because of the key differences highlighted above, Australia becomes more vulnerable to a housing crash. It is worth noting that average capital city prices were up 8.3 per cent for the year when compared with prices in September 2016 despite the fall witnessed in the September quarter. Average home prices across all eight capitals fell 0.2 per cent in the September quarter. The deteriorating Sydney market pulled the overall market lower with the national housing price index falling lately.

Looking at the scenario, Australian economists believe that Canada’s roadmap on property should be closely watched. Put simply, Canada is ahead of Australia in terms of economic and policy cycles, and in terms of monetary tightening. As per a major Australian bank (ANZ), the Reserve Bank of Australia is a bit uncertain on consumer spending given house-price growth scenario with household debt touching record highs.



Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

ASX snapping into a block-chain inspired technology

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The latest announcement by ASX to have its equity markets settlement and clearing system based on a next gen blockchain-inspired technology has come as a surprise to the market to some extent, and may lay down a different perspective on the foundation technology that will help it gaining traction towards global exchanges and technology industry.

On this front, ASX joined hands with a New York start-up, Digital Asset Holdings, run by Blythe Masters, which has been engaged for developing the technology. Primarily, the group aims to replace its old CHESS system (Clearing House Electronic Subregister System) with a new one using distributed ledger technology (DLT). The duo has completed the extensive suitability testing over the past two years.

While the schedule and plan of going ahead with the transformation has not been clearly indicated, ASX has signalled that it might take some time to achieve the objectives pivoting on the above key announcement.

Nonetheless, the key aspect to note is that the distributed ledger technology is based on a blockchain phenomenon that is expected to operate through a single source of the true state of the ledger without having dependency of transactions to be confirmed by an external network of computers, and without access barriers to non-affiliated market operators and clearing and settlement facilities. This will avert the need of reconciling records in a central system and saving of costs in an attempt to have better operating efficiencies. Further, customers would be able to develop new services while reducing costs. Through the benefits highlighted, ASX visions Australia to be positioned at the forefront of innovation in financial markets.

ASX is said to have a stake in Digital Asset Holdings.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

Amazon rang the bell in retail sector while sales data boosted locals

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Retail sector saw a big day with the US retail mammoth, Amazon, coming into limelight with the launch of its retail offer and third-party marketplace, while stronger-than-expected retail sales data helped many local retailers rejoice following some weakness in the last few months. Particularly, October retail sales have risen 0.5 per cent on a seasonally-adjusted basis after a lacklustre September quarter, and this has been better than the consensus expectation for a 0.3 per cent increase. The Australian dollar surged to US76.16 cents against US76.07 cents before the release of the data.

In early trade and with Amazon launch news, Myer (MYR) slipped by 0.7 per cent, Super Retail Group (SUL) was down 0.9 per cent and Harvey Norman (HVN) had slipped by 0.9 per cent. However, post the sales update, MYR surged 1.3 per cent, SUL surged up 3.13 per cent and HVN rose 6.25 per cent. Retailer JB Hi-Fi was also up 6.7 per cent.

On the other hand, Amazon has commenced taking orders along with shipping of products from Melbourne’s east warehouse. About 23 product categories relating to consumer electronics, outdoor goods, toys, and so forth are seen to be put forth through the launch for multiple products’ offerings. The key differentiator for Amazon has been its delivery speed which also comes with a cost; and in Australia, next-day delivery has been indicated to cost $9.99 in Sydney, Melbourne, Brisbane, Adelaide and Canberra while a slightly high number has been slated for Perth and regional cities in Victoria, NSW and SA for delivery within two days.

On one side, Aussie retailers have been bearing the pressure and are expected to lower prices, and reinvent offerings while putting down on earnings in order to compete; on the other side, we already see handbag retailer Oroton (ORL) falling prey to administration and Godfreys under immense pressure with the challenges that have been building up in the sector in 2017. The key to sustainability and success for the locals would thus be improving on customer experience.


 Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

Energy and Resources Stocks zoom up with news on extension of oil output cuts

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Energy and Resources Stocks like Beach Energy that charged high by about 8.6 per cent on December 01, 2017, got a boost from the latest development in the oil sector with the OPEC (Organisation of the Petroleum Exporting Countries) and non-OPEC producers led by Russia moving a step closer to reduce the puffy oil stockpiles. The producers have now agreed to extend the oil output cuts by nine months until the end of 2018. The supply is said to be cut by about 1.8 million barrels per day (bpd) for raising oil prices, and this deal expires in March. The aim is to clear up a global glut of crude and support prices to stay above $60 a barrel.

Kuwait’s oil minister has also signalled for co-operating with the non-OPEC countries till the end of 2018. On the other hand, Nigeria and Libya have been exempted from cuts owing to geopolitical situation and already low production. The combined output of Nigeria and Libya at 2017 levels was slated to be below 2.8 million bpd.

Meanwhile, Russia has also flagged the way to exit from the cuts in order to avert a situation that can cause a deficit. It has been emphasized that Russia needs much lower oil prices from the point of balancing its budget in comparison to Saudi Arabia, which is expected to benefit from high-priced crude given the stock market listing due for Aramco. It appears that the countries might exit the deal in a gradual manner in order to avoid any surprises to the market.

It is noteworthy that production cuts since the beginning of 2017 have enabled curbing the excess global oil stocks by half. However, there are also emerging concerns on increase in rig count by US producers over the next few months due to higher prices, which can reverse the anticipated scenario.

In the meantime, other key stocks in the sector surging up at the back of the news included BHP Billiton, which was up 1 .03 per cent, and Woodside Petroleum, which was up 1.2 per cent.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

Banks get a smashing with Royal Commission coming into picture

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A composite image of signage of Australia's 'big four' banks ANZ, Westpac, the Commonwealth Bank (CBA) and the National Australia Bank (NAB) signage in Sydney, Friday, Oct. 23, 2015. (AAP Image/Joel Carrett) NO ARCHIVING

On November 30, 2017, major banks were seen to move on losses while falling prey to Royal Commission into the financial sector. The properly constituted inquiry is expected for a term that is no longer than 12 months with a final report due in February 2019. This news has led the big four banks to slip with ANZ plunging 1.1%, Commonwealth Bank down 1.9%, and Westpac down 0.03%. Other financial sector stocks also felt the jitters with Bendigo and Adelaide Bank, Bank of Queensland and Macquarie Group losing during the early trading.

Primarily and owing to the mounting political pressure, the federal government and the banks have agreed on a royal commission into the industry. Thus, the Royal Commission, as announced by Prime Minister Malcolm Turnbull and Treasurer Scott Morrison, is aimed at managing the scenario which was otherwise impacting the sector and the overall economy. It has been specifically highlighted that only the government can ensure that a royal commission is created, established with respected and capable commissioners. The government has been also advised by the Governor of the Reserve Bank and the chair of APRA of the economic damage being caused by the speculation about an inquiry. The measure thus seems to curb the use of financial institutions and services as a political football. As of now, about $75 million have been allocated for the commission to investigate the banks, and other financial institutions including superannuation providers and insurance companies.

The key thing to note is that the major banks were seeking a secured scripted Parliamentary inquiry but landed into an open ended royal commission. As of now, the banks including CBA, NAB and ANZ have acknowledged that a Royal Commission had been announced without much commentary from their end.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Is Infrastructure boom setting the next leg of growth for Australia?

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While housing price crash has been in discussion these days, the other much talked about topic is to do with infrastructure boom that has been highlighted to be the next growth engine for the Aussie economy. It is being estimated that infrastructure can help have the economic growth maintained at about 3% while providing support to engineering, building and professional services companies. This space is now considered to be emerging as a highly competitive one.

Some experts had even labelled the scenario set to be witnessed as a mini-infrastructure boom since the federal government revealed its plan to spend at least $16 billion on infrastructure investment over the next few years. The total expenditure inclusive of spend by states is being expected to be about $237 billion. With major projects’ receiving funding, this number can surpass $300 billion with the spending expected to crown in 2020.

The infrastructure related developments with regards to roadwork etc. seems to be providing growth over the prevailing weakness in housing; and road infrastructure, independently, is assessed to provide a rise of 0.9 per cent of GDP to 1.5 per cent in next few years. Support is also expected from investment in telecommunications, electricity generation, and water supply at the back of activities that include NBN rollout. Therefore, investment in the sector is expected to mitigate challenges related to residential construction. Further, it has been highlighted that transport projects will play a good role in supporting the boom.

The Reserve Bank of Australia also indicated that infrastructure work is bringing private firms join hands with public sector and thus the overall investments seem to have taken a new turn. This is expected to help economy at large.

At the back of this boom, stocks in the sector are also expected to do well. Examples to cite include Boral (ASX: BLD), Lendlease (ASX: LLC), Spark Infrastructure (ASX: SKI), WorleyParsons (ASX: WOR) and Transurban Group (ASX: TCL). These groups have in fact reported healthy development pipelines in their recent financial results and signalled a rising demand for their products. For instance, there will be a rising demand for Boral’s products that include concrete, asphalt, and cement.

Overall, the next ten years might bring a changed landscape, with this sector gaining a lot of attention.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

Australian housing market: Attaining Stabilisation or Setting for a Crash?

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Australian housing market continues to be looked as a speculative bubble that has been driven by low interest rates, tax breaks, and mortgage stress. The market value of Australia’s homes is said to have reached $7.3 trillion with the last five years of price hikes, and this is estimated to be four times gross domestic product.

Every now and then, the speculation of its burst comes into limelight with any miniscule level of activity. The property price dip in Sydney has aggravated the concerns lately. The property sector has been an expensive one when scaled against income and rents, with a weak affordability creeping in while there has been rise in debts. This has dented the overall Australia’s financial stability.

On a regional landscape basis, it is worth noting that dwelling prices were on the upswing over the last five years and estimated to be at an average annualised rate of over 11% per annum in Sydney and over 9% in Melbourne, while prices in regions including Brisbane, Adelaide and Hobart have risen by only a relatively small percentage with Perth and Darwin on the other side of the ledger. The housing market has also been propelled hard by rising demand with increase in net immigration and population, while the supply has remained low. However, recently some market experts have indicated for an oversupply instead, with inner city areas of Sydney, Melbourne and Brisbane having extra housing, although other areas have been witnessing shortages; and this mounts up the uncertainty prevailing in the sector.

However, Reserve Bank of Australia governor Philip Lowe, in a recent address, explained on Sydney and Melbourne being the superstar cities that appear to rationalise the house price scenario beyond the effect of low interest rates. Further, it was emphasized that Melbourne does not face an oversupply problem.

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Housing Prices (Source: Reserve Bank of Australia)

On the other side, it is believed that given the scenario, the Sydney and Melbourne property markets might witness a sluggishness in view of the factors including APRA’s regulatory measures for capping lending to investors and interest only buyers. Further, the basis that property market may crash does not deduce any significant support from signs of recession given the latest jobs data scenario and expectations to have gradual rise in interest rates in 2018.

Overall, the market consensus goes for a sluggish trend but not spiking towards a property market crash immediately. Meanwhile, investors with a long-term view on properties might want to be wary of investments in the now so-less attractive Sydney and Melbourne regions.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

 

Amazon Unveils a Two-pronged Strategy for Market Entry in Australia

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Amazon, the US e-commerce and cloud computing giant is said to hire 1,000 people in Poland. The company already hires almost 5,000 people in Poland and has service centers in Gdansk, Wroclaw and Poznan ON 14 April 2016. (Photo by Jaap Arriens/NurPhoto via Getty Images)

Amazon’s decision to launch a two-pronged strategy for entry in the Australian retail market and replicate its fast-paced rollout in Spain seems to be magnifying the impact on Australian retailers. While Australian shoppers are eagerly waiting for Amazon’s entry in Australia, most of the retailers don’t know what to do about the threat from competitive standpoint.

At a recent seller summit, Amazon’s Country Manager, Rocco Braeuniger, has signalled that the e-commerce player would launch both its retail platforms, its first party offer and Amazon Marketplace very soon. However, most of the Australian retailers are in dark to come up with a strategy to combat the global retail giant’s move.

Coming back to the strategy that Amazon has talked about, it is worth noting that Amazon started selling products across at least half a dozen of categories in Spain in 2011 and launched Prime within subsequent months of entering the market; while Prime Now was launched in Madrid and Barcelona in 2016.

At the moment and in view of the historical market entries in other parts of the globe, Aussies are keeping a close eye on the way Amazon will showcase the launch.

The key things to note include that Amazon aims to have a market entry strategy revolving around:

  • Listening to the customer, inventing on behalf of the customer and delivering a great experience
  • Launching a first party offer, where it would buy products on a wholesale basis directly from suppliers and brand owners, and sets its own prices
  • Launching an active Marketplace, where individual sellers would list their wares on Amazon’s site, simultaneously, offering numerous products at one go with comparative prices.

Amazon said the monthly fee for selling on Marketplace would be $49.95 plus GST for an unlimited number of product listings. A referral fee might also be charged depending on the product. Further, the cost of fulfilment by Amazon was not revealed but sources indicated that it would be like that in the US, where sellers pay between $US4 and $US7 per item for shipping and handling, customer service and returns.

Amidst these developments, two of the Australian biggest retailers, Harvey Norman Holdings Limited (ASX: HVN), and JB Hi-Fi Limited (ASX: JBH) are seen to succumb to heavy short-sellingHarvey Norman has slipped by about 14% in last three months while JBH has been down by 7%, as at November 14, 2017.

Amazon seems to be pumping in momentum with more consumers attracted to shop online, where margins are thinner. This is expected to drive retail prices on a downswing and would eventually, force retailers to invest heavily in e-commerce infrastructure that may take some time to deliver returns.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Two Macro Threads Causing Some Jitters

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US Senate tax bill weighing on Equities while RBA touched upon lower inflation forecasts

With what can be called a potential clash anticipated between President Donald Trump’s administration and US Senate Republicans, the global equities have started losing some ground at the back of the US tax plan proposal which is now speculated to delay corporate cuts until 2019.

On Thursday, US Senate Republicans had proposed a tax overhaul dealing with the deductions for all state income and property taxes; and the proposed plan might delay the new lower 20 per cent corporate rate from 35 per cent, only from 2019, in order to avoid piling over the already high deficit over the next decade. The Senate plan also proposes for little lower individual tax rate than the House version. Particularly, the Senate plan seems to lower the top individual rate to 38.5 per cent for individuals earning $500,000 or more and couples earning $1 million or more. The Senate plans entail a bulkier array of individual tax brackets that are 7 in number against four as proposed by the House. Amidst the developments, the equity markets were seen to witness fluctuations in the volatility index with various uncertainties now casted in the minds of the investors.

At home, the Reserve Bank of Australia (RBA) touched upon some forecasts relating to inflation and interest rates, which came as a surprise to many and were significant in terms of economic growth. The bank signalled to maintain the historically low interest rate while a slow return to an improved level of inflation is reached.

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Inflation Trend (Source: RBA)

Given the low wage growth, challenges in retail and labour market scenario, inflation forecasts are said to now undershoot the bottom of the target band in 2018 and at the bottom of the band in 2019. Particularly, underlying inflation is expected to remain steady at around 1.75 per cent until early 2019, before increasing to 2 per cent. RBA’s recent statement of monetary policy thus indicated for sluggish inflation and interest rates to stay at a record-low 1.5 per cent at the moment. This has also impacted the dollar price a bit and brought a blow to the market expectations of rising of rates as foretold by the bank for 2018 and rather contemplates for further cuts in the coming year.

In its statement, RBA mentioned that household spending is still entrenched in a high level of uncertainty as highly indebted households struggle with low wage growth; while labour market conditions are strengthening with above-average employment growth expected to continue.

In contrast to the inflation scenario, RBA is confident that GDP growth, which otherwise dipped in the September quarter, will bounce back in support from continued investment. There has been a 10 per cent rise in non-mining investment since 2016 and is expected to follow the trend. Further, public investments will also grow stronger.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

The Story ahead for Commodity Prices

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With changing dynamics for commodities as seen in the recent past, many stocks are moving to-and-fro on the pendulum. While early 2017 brought some relief for many iron ore stocks such as BHP Billiton and Rio Tinto, the iron ore miners now seem to be coming under pressure again as iron ore prices are forecasted to slip by about 10% in 2018. As per the latest market outlook on commodities released by World Bank, the weakness in iron ore price forecast is offsetting the rise in all base metals. The drop is expected to follow the projected 22% increase in 2017. At the same time, upside risks that involve any improvement in global demand with production shortages might impact the price scenario. Overall year 2017 saw a significant jump in metals index, which will now be impacted by correction in iron ore prices. Nonetheless, 2018 metals index might get stabilized with increase in prices in other base metals. In the third quarter of the year so far, there has been an increase in all metals prices led by zinc and nickel (up 14%) followed by iron ore (13%) and copper (12%). With regards to Aluminium prices, high levels were seen to be attained recently considering the last five years’ scenario. Particularly, London Metal Exchange aluminium had lately surged up to $US2215 since March 2012. This has come at the back of many factors including concerns on supply shortfall.

On the other hand, World Bank has forecasted the oil prices to rise to $56 a barrel in 2018 from $53 with growing demand, production cuts, and stabilizing U.S. shale oil production. The market also expects oil to stabilise at $US55 to $US60 a barrel in the near term. The recent uptick in the price has been seen to be coming from the support from Saudi Crown Prince Mohammed bin Salman on the extension of OPEC output cuts beyond March 2018. Meanwhile, Iraq has recommenced the exports of crude from Kirkuk province to Turkish port of Ceyhan.

Considering the above, trading in commodities in the near term needs to entail a cautious approach. Investors can consider some exposures in oil sector for instance, with the improving sentiment. World Bank has forecasted a 4% rise in index of energy products for 2018 while agricultural goods are said to rise 1.2%. On the other hand, a fall of about 0.7% has been predicted for metals and minerals. While gold and silver might face some pressure with any rise in U.S. interest rate; platinum is expected to rise by 4%.

TSA1

Commodity Prices (Source: Commodity Markets Outlook by World Bank)


Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Bitcoin in the trap of the ‘B’ word – Is it about to burst?

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The digital currency, Bitcoin, has seen a stupendous five-fold rise in the last few months and has been on a tear. This makes the market sense about the bursting of a bubble which has been building for some time. The price for Bitcoin touched around US$5,000 at the beginning of September 2017, before slipping to the low level of US$2,981 few days back driven by the headwinds from China (which is closing its cryptocurrency exchanges), but it swiftly surged back to US$3,929 with the bullish momentum again picking up.

These turnarounds have given fuel to the speculation that the cryptocurrency is in a state of a bubble that can burst soon. It is yet to be understood that whether the current buying is merely at the back of selling prospects at higher prices or the rise would eventuate towards the use of Bitcoin as an alternate currency.

Chief executive of JPMorgan Chase, Jamie Dimon, has even termed Bitcoin a “fraud” and had compared the recent hype to the tulip craze of the Netherlands in the 1600s. Some have also labelled the currency as a blockchain technology with a probable potential to revolutionize economies, but still said to blow up in some time. Even Warren Buffett had earlier highlighted that the currency lacks intrinsic value, calling it to be a mirage.

In parallel to the above views, Ray Dalio, the founder of Bridgewater Associates has said that Bitcoin is not an effective storehold of wealth owing to its association with volatility (unlike gold), and is a highly speculative market.

It is also worth noting that money laundering risks hover over such digital currencies. Apparently, Bitcoin or other digital currencies do not need the holders to trade under their real name and this is said to lead to money laundering activities.

Given the aura around, it is to be seen whether the digital currency will again touch new all-time high and sustain the level, or crash as expected by majority of the experts.


Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Market predicts Two RBA Rate Hikes over the Next Year!

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Amid the recent hustle bustle in stock market with many macro factors weighing over the stock indices, there seems to be a wave of discussion on RBA’s probable move of hiking interest rates over the next year. The recent RBA board meeting (in which RBA held rates steady at 1.5 per cent for a 13th straight month) touched upon the overall Australian economic view with a focus on labor market scenario, and this seems to have given rise to many versions with regards to the interest rate change predictions for the next year.

For instance, ANZ Bank has predicted that the Reserve Bank will raise official interest rates by 0.5 percentage points in 2018 as the Australian economy is gradually improving. They have pointed to a strong outlook for private business (non-mining) investment, underlying inflation reaching 2 percent, strong public spending and lower unemployment. David Plank, head of Australian economics at ANZ has said that they have revised the growth forecast and are much more optimistic about the economy. The first hike is expected for May 2018. Furthermore, Australia’s cash rate has been at a record low of 1.5 per cent since last August, but ANZ economists David Plank and Felicity Emmett said that the data suggests that “downside risks” to the economy have eased, removing the need for ultra-low rates. There is a mild tightening cycle for the such low rate, partly because of the global interest rates’ scenario and highly indebted Australian households. In addition, the economists believe that if the cash rate stayed at its current low, “real” or inflation-adjusted interest rates would be negative, which is not necessary in an improving economy.

In coherence with the economic state as pointed out by ANZ, RBA is becoming more optimistic on the overall outlook, but still has been reluctant to raise interest rates this time. Governor Philip Lowe has stated that the economy was growing as per the expectations and was likely to pick up; however, the stronger Australian dollar has weighed over this positive. Further, the continuing high household debt and low wages growth still remain to be the problems for the economy, with household borrowing outstripping the growth in hourly earnings. Moreover, compared to many other developed economies, the RBA has not been forced to bring the interest rates to zero or even in negative territory, as the Australian economy remained relatively well insulated after the global financial crisis.


Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

ASX: FMG – Spotlight on the Iron Ore Miner on the Financial Front

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While many shifts in the iron ore market have been on and some experts believe that Fortescue Metals Group Ltd (ASX: FMG) will be putting itself into the shoes of a junior player, Atlas Iron, in terms of financial scenario casting doubts on the earnings projections made by many others. On one side, many believe that the group has the potential to witness an earnings’ result that can be over $US1 billion in upcoming years, 2019 and 2020; and on the other side, we have many believing that the widened scenario for lower grade iron ore related discounts in prices can nudge the whole framework with some financial holes digging a bit deeper. The past 2 years have led ASX:FMG work on more discounts with Chinese steel mills preferring better iron content ores.

It is worth noting that FMG’s products having content of iron ore below 59-60% have received large discounts against the ones with 62%. The group now aspires to have developing >60% iron content product with Eliwana cited to be having 60% Fe  product. Production at the Eliwana project has been slated for December 2020.

Then there has been a big reduction in its net debt in last five years, and the debt now sits around $US3 billion as at FY17 against over $US10 billion as at FY13. The aim is to be in a state of no debt repayments until 2022 with more work on balance sheet. At the same time, if one looks at the stock price movement over the last five years, the ASX: FMG stock has risen about 21.5% but with iron ore shortcomings and other performance related issues, the stock price plunged about 14% in last one year.

As at Q3 of 2018, FMG’s net debt has been reported around US$3.1bn while shipped C1 costs have been US$12.43/wmt and interest savings of US$130mpa were reported. The focus over the recent periods has been to portray long term low cost outcomes backed by structural improvements and better productivity.

For half year 2018, the group’s NPAT was US$681m with cash on hand of about US$892m. The interim dividend was a payout of 40% with US$0.22 as earnings per share. The group is trying to pull strings towards managing operations to have better margins, and its free cash flows have been lowered. Hence, less borrowing costs with improved capital management have been taken to the next level with low cost growth options being explored for the iron business. At Pilbara, the group is trying for having low cost growth options that can unveil position in Iron Ore, Lithium, Copper and Gold.

For FY18, the group has slated to have a dividend policy of 50-80% pay-out of NPAT. While the general iron ore price forecasts have been taking a mixed view, it will be a key to watch out the iron ore miners in the given set-up and how ASX:FMG would place itself given the other giants like ASX BHP Billiton in place. FMG is about to reveal more on product pricing in the coming period.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Higher US interest rates and impact on ASX listed banks

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In a rising interest rate environment, the effect is also seen on the stock and bond markets. This is primarily because of the psychology of the consumers and businesses – as and when there is an interest rate hike, both consumers and businesses cut their spending habits to save on the higher interest rate prevailing in the market. This in turn causes earnings to fall and stock prices to drop as some companies are sensitive to interest rate movements. Also, interest rates affect bond prices where they have an inverse relationship i.e. when interest rates rise, bond prices fall and vice versa.

As the demand for lower yield bonds drops it will cause the price to drop. Rising rates also makes the US dollar stronger, for companies in the US, eventually impacting the international revenue and making US products less affordable for foreigners.

In such a case, what reduces the need to pursue high yielding investments in Australian (ASX listed) banks like Big fours, naming, Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corporation (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB), is the rise in interest rate that investors can get an impact from when keeping their money in cash.

This lack in investments may also pull U.S and other investors out of the ASX listed banks or companies. Entities or Companies that buy from or sell to US companies, like the ASX listed banks which borrow a large sum of money from the US, can be hugely impacted if the US growth itself is under the paws of the rise in interest rates. US bond yields have been rising lately signifying that the US economy is improving, and which is seen as a sign that the US central bank may also raise the interest rates soon. The cost of funds for Australian banks could eventually increase who borrow a large amount from the US.

Historically, whenever Australian interest rates are surpassed, and US interest rates have increased, the Australian dollar starts losing value relative to the US dollar because the US market becomes more appealing to the global investors. Banks simply earn from the spread i.e. what they pay for a deposit and what they receive from a loan.

The recent trend as studied by many experts, is indicating that the big four Australian Banks i.e. the Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corporation (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) may start raising interest rates on all home loans and not just on the investment loans that all banks have started lifting the rate on recently. So to say, protecting the banks’ profit margins might not just revolve around higher interest rates on investment loans but more might be needed and this will drill down to how investors get acclimatized to the changes and are asked to pay for.

Lately, ASX-listed banks post the Royal Commission have recorded moderate gains and would be now key to watch as US Federal Reserve has projected to have more interest rate hikes in the next few months.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Is ASX: WHC anywhere close to a buy bet?

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Whitehaven Coal’s Chief Mr. Flynn pointed it out to the International energy agency, that the thermal coal demand which show cases need in south East Asia is expected to be increasing from 187 million tons to 452 million tons by 2040. The increase in the thermal core export shipped out of Australia in the past year is more than double the 200 million tons, when exports hit a record $23 billion. Australia is a proximate source of high quality coal to that demand center, and one of the reasons of low quality coal was worse emission outcomes. The scenario is still questionable given the shift to renewables and there is some risk looming over the metallurgical coal prices that are expected to drop in couple of years from now.

Given the backdrop, Whitehaven Coal Limited (ASX: WHC) is an energy sector stock which is into exploration and coal mining; and has traded at a market price of $5.810 which is near its 52-week high, as at July 09, 2018. The stock has seen a daily price change of -$0.080 or -1.358% on said date. The stock otherwise has risen by 111% over the past 12 months and was seen trading at $ 5.85 as at July 10, 2018, market open. The annual dividend yield of the stock is 3.27% and the most recent dividend declaration was of 13 cents. The P/E ratio of 11.330 is well compared to its peers and the EPS is of AUD 0.513.

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ASX: WHC Daily Price Chart as at July 09, 2018, Source: Thomson Reuters

The company is the largest producer of high quality coal from the Gunnedah Basin i.e. high Calorific Value (CV) and low ash and Sulphur. Whitehaven recorded half year net profit of $257.2 million, up 63%, and EBITDA of $460.6 million, which is up by 42% on the prior corresponding period. An interim dividend of $0.13 per share declared recently.

The recent purchase of the Winchester South metallurgical coal project in Queensland provides another growth opportunity beyond Vickery project, while managed saleable coal production is forecast to grow strongly from the startup of the Vickery project. In Australia, in recent years Whitehaven has developed the only new large-scale mines – Narrabri and Maules Creek. Modest increase in exports from Australia – 203Mt in 2017 to 213Mt to 2020 is being led by Brownfield expansions from several mines. Existing operating mines and limited new developments are the focus in the recent M&A activity.

Three of the largest coal users – China, Japan and India will continue to use coal for decades to come as they install new HELE technology (high efficiency, low emission). Many regions are diversifying the energy sources and aim to provide cheap and reliable electricity for their growing populations, however, the countries that do not have indigenous sources of energy are still committing to coal.

According to the demand for both metallurgical and thermal coal, which is expected to continue growing to 2040 and 2035, respectively, coal companies may be the beneficiaries for some more time. The demand growth in Asia is likely to exceed the developed economies in Europe and United States for which the demand is declining, also the demand for high CV clean coal like the one produced by Whitehaven may rise as more HELE power stations are deployed in the region. Many countries including India, Japan and China have included coal use in their respective Nationally determined contributions underpinning coal demand, however, new mines are difficult to develop and finance related issues are cropping up in many jurisdictions. Given the whole scenario and higher trading levels for WHC, it can be watched out while the risks in the coal sector do prevail.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

Australia’s Credit Crunch and ASX Listed Banks’ Housing Credit Growth

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With the Royal Commission playing havoc on the financial sector, lending laws have been under focus with rigorous interpretation, and hence there are expectations of a sharp slowdown in credit growth. With about a 40 percent drop in bank share prices, the credit growth would fall by 2-3 percent and there be a significant rise in the impairment changes that will put pressure on bank net interest margins.

There are tighter lending restrictions which are also known as macro prudential policies which were started by APRA in late 2014 that introduced a 10% annual cap on housing investor credit growth. Of the total new mortgage debt in March 2017 what followed the policies was the regulator limiting the interest only loans to 30%. Now APRA’s restriction removed the cap on annual investor credit growth for some lenders and for already heavily indebted borrowers announcing more stringent lending criteria.

The expectations from the lenders by APRA is that they develop policy limits on maximum debt to income levels for individual borrowers and internal portfolio limits on the proportion of new lending at very high debt to income levels. This will help the banks take into account the total borrowing of an applicant rather than just one or two specific loan applied for, which might be a more detailed and complex service calculation for individual borrowers.

On the other side the lenders remain positive about the outlook and remain optimistic about the domestic housing market but they did expect that the price growth could subtle down which would mean housing credit growth will ease down. The ASX Listed Banks, specially, the big four banks – Australia and New Zealand Banking Group Limited (ASX: ANZ), Westpac Banking Corporation (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA) and the National Australia Bank (ASX: NAB) have lost around 4 percent of their value since the time the commission has been laid down upon the lenders.

Strict restrictions could trigger a far bigger and systematic crunch which can not just hit the profitability of the banks but also potentially the entire economy. As house prices are mainly determined by the availability of the credit, we could see a weaker house prices for few years. Many experts say and agree to the fact that the changes by APRA are, instead of loosening the lending standards, gradually tightening them.

As per estimates, the borrowing capacity has been on a downslide plunging by 20% over the past three years. This has led to predictions and forecasts that major ASX listed banks’ housing credit growth by 2019-2020 will fall to almost zero with more restrictions on credit to be seen soon. Borrowing capacity is also expected to shrink around 30 percent if the banks have to follow the strict regime of actually verifying the living expenses using applicant’s transaction records, and this is not just now that both investors and owner-occupiers on the maximum borrowing capacity have faced constraints. While the cash rate stays as it is, its widening gap with the bank bill swap rate can impact margins. Now, whether these concerns are inflated or not, will be tethered to regulations in the sector which are must to look into. Nonetheless, this makes the play around the ASX Listed Banks to be watched out for opportunities and risks.


Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

An insight into this pharma stock – Mayne Pharma Group Ltd (ASX: MYX)

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Company Overview: Mayne Pharma Group Ltd.’s (ASX: MYX), offerings include product development, analytical development, contract manufacturing, formulation development, logistics, and others. Mayne Pharma offers products in the dosage forms of powders, liquids, tablets, capsules, and creams. Mayne Pharma Group Limited (ASX: MYX)  was trading at a market price of $0.865 at trade open on July 06, 2018; and saw a daily price change of -$0.010 or a percentage change of -1.136% on July 5, 2018.

Financial and operational performance: For 1HFY18, the company reported EBITDA of A$ 23 million and adjusted EBITDA of A$70 million. Driven by assets impairment, the company reported a net loss after tax of A$174 million, based on abnormal Doryx returns and stock obsolescence, restatement of deferred tax assets and liabilities following the US tax rate change and restructuring expenses. Operating cash flow has been positive A$48 million following the significant working capital injection in the prior corresponding period (pcp), and with decent adjusted gross profit. The group has seen a significant improvement in trading during 2Q of FY18.

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MYX 1HFY18 financial results in millions, Source: Company Reports

On the other hand, competitor disruptions are creating opportunities and US generic market appears to be stabilizing a bit now. Both Mayne Pharma International and Metrics contract services delivered margin growth along with solid revenue. Expanding sales reps to 120 by end of December by the specialty brand franchise is expected to drive some growth. The company continues to invest in research and development to advance and expand product pipeline and has added 2 products to US pipeline, and filed 3 products with FDA. Monurol granules have been approved and launched in Australia and favorable phase IIb study results for SUBA – Itraconazole in BCCNS have been reported.

A stronger second half driven by stabilizing generic market, the expanded dermatology sales team, new product launches, contract service committed business pipeline and cost benefits from the organizational restructure has been indicated by the group.

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MYX financials for 2017, Source: Company Reports

Industry Dynamics: The research from Barclay’s shows 13% deflation year on year and an increase of 3% month-on-month in December 2017. Mayne Pharma price deflation depicted low single digits in 1H FY18 versus low double digits in 2H FY17. US generic market is expected to grow at mid-single digits CAGR to 2020 driven by aging population and increasing incidence of chronic disease, increased demand for generics to lower healthcare costs and brand loss of exclusivity of US $70 billion over the next 5 years.

Product and new facility launch: Mayne Pharma has officially announced the solid oral-dose manufacturing facility opening in the US – the 126,000 square-foot, facility, built up from the ground and custom-designed to meet or exceed the standards of major drug regulatory authorities. It also quadruples the group’s capacity to manufacture oral solid-dose pharmaceuticals in the US and introduces new capability to manufacture modified-released bead/pellet products and significant capacity to manufacture potent compounds.

Mayne Pharma launched two new products manufactured at Greenville doxycycline hyclate immediate-release capsules and completed the technology transfer of disopyramide capsules from a Teva site to Grenville.

While the stock has risen about 20% over last three months, the shortcomings in terms of financials and intense competition prevail. Thus, it would be a watch in the near to medium term.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

The buzz around ASX being on a sell off trend!

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It seems that the Wall Street’s lead of closing lower at the behest of the threats from Washington to curb Chinese investment in the US, was followed by the Australian equities as well, as seen on June 26, 2018. However, the S&P/ASX 200 moved from a big opening loss to close 0.2 percent lower or 12.8 points at 6197.6 points, and avoided the bigger loss made on Wall street as at June 25, 2018. The US also saw a decline in the Dow Jones Industrial Average by 1.3 percent to 24,252 points and the S&P 500 to 2,717 points down by 1.4 per cent. The Nasdaq tech-heavy index fell to 2.1 per cent to 7,532 points, as at June 25, 2018. However, as at June 26, 2018, the share markets were seen to have stabilized a bit with US share indices recovering (DJIA up 0.1% and S&P up 0.2%) with rebound in tech shares and rise in energy plays. On the other hand, FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) were on a sinusoidal trend and were seen to stabilize on June 26, 2018 after the initial hiccups. The recent downtrend was based on the trade war fears that developed on the additional goods tariffs on Chinese imports beginning July 2018.

The whole saga of events impacted Australian stocks and the tech growth darlings like Altium, WiseTech and Appen, were seen to be falling down on ASX on June 26, 2018 (all around 4% by mid-day trading). In fact, the winds took a reversal as WiseTech, which had fallen about 3% in last five days, recovered by 3.79% a day later. Even Appen was seen to be moving up about 2.4% in initial trading post the sell-off.

Stocks like BHP Billiton and RIO Tinto under the materials and mining sector also slipped on ASX while a recovery was seen on June 27, 2018. However, Commonwealth Bank of Australia (CBA) shares rose against the trend on June 26 as they confirmed split of the wealth manger CFS Group. Australia and New Zealand Banking Group Limited (ANZ) and National Australia Bank Limited (NAB) stocks made modest gains making the banking stocks the market leaders, however, the rise was not seen to be continuing that well on June 27, 2018.

Given this to be the final week of the financial year, many sell-offs are being witnessed amid the threat on curbing of overseas investments in the US. Lately, the housing cycle has hit shares of CSR, the building materials group while banks were tightening their lending criteria in property markets and the foreign investments in housing markets have slowed down.

The Australian share market made modest gains from its lower open on June 26, 2018. Continuing from what was seen in a day’s framework and with some replacements in better performing stocks at the back of rally in oil and iron ore prices, ASX is still expected to trend lower on June 27, 2018 while weakness seems to be pouring in from different sectors though mining sector has been on the rise.

All in all, trade jitters and other domestic level issues that have been hovering around ASX seem to be slightly dodged by the energy sector movements, as at June 27, 2018; however, the stocks still would see some impact from macro standpoint before settling into the new financial year.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

3 ASX Stocks under Scrutiny for Daily Stock Tips

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Stocks are bound to see fall and rise over a period of time considering the market conditions and sometimes undergoing projects and other activities that contribute towards the movement. Further, the movements can be key to deciding for daily stock tips with opportunities unveiling for entry position or for booking profits. Here are three stocks which have seen significant movements over 12 months period.

Vocus Group Limited (ASX: VOC) is a telecom sector stock that has seen a downfall for quite some time – the stock tumbled by -3.292% as the daily price movement and $-0.080 daily change to close at $2.350 which is near its 52 week low of $2.110, as at June 25, 2018. The stock has seen a performance change of -33.8% over the past 12 months. The price change over the same period has been from $3.500 as at June 22, 2017 to $2.430 as at June 22, 2018. However, VOC was seen to be recovering on June 26, 2018 with an initial 1% rise on ASX by mid-day trading. Group Chief Financial Officer, Mark Wratten, has lately flagged that the group has closed its new and upsized syndicated debt facility (A$1,270 million and NZ $150 million). This facility that is now in place will help executing the strategic initiatives over the coming years. This has showcased that despite market challenges and group-level shortcomings seen over the last one year, VOC existing and new bank group partners continue to support the group.

Medical Device and Healthcare group, Airxpanders Inc. (ASX: AXP) was founded in 2005. Airxpanders Inc.’s AeroForm is used in patients undergoing two stage breast reconstruction. Further, AeroForm in 2016 was granted U.S FDA authorization. Headquartered in Palo Alto, California, the company’s vision is to be a global leader in reconstructive surgery products. On June 25, 2018, the stock of the company traded at $ 0.092 and had risen 15% in last one month. However, it was found to be again slipping in negative territory on June 26, 2018, trading around $0.092 by mid-day. The stock is near its record 52 weeks low of $0.072 and has seen a performance change of -86.27% over the past 12 months. The company has its new CEO, Mr. Frank Grillo on Board and announcements and forward statements are made based on management’s belief with the long term prospects for the business, improved effectiveness of sales model, reduction in cash burn and achieving profitability. While the group is positive on expansion of customer base, and therefore, believes in working on efficient use of AeroForm; the stock movement is yet to demonstrate great returns for the shareholders.

Now, in view of the sinusoidal stock trends, we have one gold stock that has seen a rise recently. The stock under consideration is Northern Star Resources Limited (ASX: NST). While gold stocks have been on a different trend these days irrespective of market volatility, NST has been surrounded by positive sentiments around the mining industry. The stock on previous close (June 25, 2018) traded at $6.890 which is near its record 52 week high of $6.970. The company is into exploration of gold and other minerals and also gold production. The stock saw a daily price change with a rise of 5.352% as at June 25, 2018, and continued the upward trend on June 26, 2018. Coming to the last one year performance, the stock has seen a change of 46.28%, and a price change from $4.850 as at June 22, 2017 to $6.540 as at June 22, 2018. The company has lately hit the production rate target of 600,000 ozpa, and production for June quarter to date is 150,000 oz.

Based on the above, these three stocks are yet to look appealing with respect to daily stock tips for making great returns at the moment, however, these are under the radar to be watched for further developments.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.

High Income Yielding Stocks or Dividend Traps – Telstra (ASX: TLS) & National Australia Bank (ASX: NAB)

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Telstra Corporation Ltd (ASX: TLS), a blue-chip telecom company that provides provision for telecommunications and information services, including mobiles, internet, and pay television, has lately revealed its new strategy for 2022 to beat challenges pertaining to competition from players like Optus, Vodafone and TPG Telecom. The prioritizing of mobile over everything else amongst the portfolio of Telstra’s business is clearly aimed towards challenged scenario. However, Telstra’s business is impacted considering lower average revenue per user and lower profit margins.

FY19 EBITDA guidance excluding restructuring costs of approximately $600 million is expected of $8.7 – $9.4 billion. This is in fact lower than what was earmarked for FY18. The new strategy is named as Telstra 2022 and has four main commandments to:

  • Simplifying the product offerings while simultaneously creating all digital experiences.
  • Driving better performance with a standalone infrastructure business
  • Simplifying the structure, empower people and serve customers.
  • Undertaking Portfolio management and Cost reduction program

The company’s restructuring plan was provided as the way forward, however, the market was still displeased and a share price fall of about 7% percent to quite low levels was recently seen (last five days as at June 22, 2018). The company though aims to focus on long term value despite economic consequences.

There are announcements around spending up to an additional $1 Billion in regional Australia, including delivery of more than 650 sites under the Federal Government’s Mobile Blackspot Program. From a revenue point of view, the new business – InfraCo would have revenue of around $5.5 billion and EBITDA of around $3 Billion, annually. Telstra InfraCo will be controlling assets with a book value of approximately $11 billion including ducts, pipes and fiber representing the majority of those assets. In a release to ASX, the group confirms that there is no change to its capital management framework and expects its Capex to sales ratio in the range of 16-18% in FY19. Over the medium term, Capex to sales ratio is expected to be around 14%. Further, the group re-affirmed that the dividend for FY18 will be retained at 22 cents per share, and the stock now depicts an annual dividend yield of 8.46%, which is quite high in view of the latest shortcomings.

TLS unlimited data move becomes significant as results have shown that consumers are increasingly dependent on mobile networks for connectivity and consumption. As compared to the world major telecommunication companies who are planning to launch 5G in second half of 2020 and maybe even late 2021, Telstra plans to do the same in 2019 or early 2020. The company thus hopes to save $1 Bn and handle the cost of putting resources into future technology. The strategy is built on the critical strategic investments that the company has been making through their $3 billion investment program that was laid out a little over 18 months ago. The idea is to simplify products, services and operations. Nonetheless, the above seems to be coming at the cost of slashing the number of employees and contractors by 8,000.

However, lower FY19 forecasts and dividend decisions for FY19 to be announced in FY19 only, are few concerns that make the market think of dividend slashes in the coming periods. Overall, it appears that the company may witness the pain into 2019 while the balance sheet stays resilient, but it’s to be seen how the new strategy can be a turnaround for ASX: TLS.

Another blue-chip stock that is under immense pressure in terms of dividend cuts is National Australia Bank Limited (ASX: NAB). The group is said to have a capital shortfall (as per Australian Prudential Regulatory Authority’s 2020 target), and is witnessing a weakness in balance sheet while return on equity is still a decent number around 12%. The group’s half year 2018 result was also lower than market’s expectations and now the yield showcased over 7% looks a bit high. We are watchful of this major.


Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.