Market Update & Important Indicators
U.S. stocks ended Friday not with a bang but a whimper. The market steadied, with major indexes notching gains for the week in a deceptively calm end to one of the most volatile trading periods in years. The Dow Jones Industrial Average slipped 12 points, or 0.1%, to 16,643. The S&P 500 added 1 point, or 0.1%, to 1,989 and the Nasdaq Composite rose 16 points, or 0.3%, to 4,828. Stocks, currencies and commodities seesawed last week as investors grappled with what could be a worse-than-expected slowdown in China, the world's second-largest economy. Those fears were reignited earlier this month when China unexpectedly devalued its currency, a move that signaled the government's concern about growth, and kicked into higher gear as economic data continued to show lackluster Chinese growth. Uncertainty about whether the Federal Reserve will be able to raise interest rates this year also added to the outsize moves across markets.
Chinese stocks surged for two straight trading days amid suspected government buying, but plunges Monday and Tuesday left the market down nearly 8% for the week. China's domestic market became the epicenter of a global selloff, with a five-session crash starting last Thursday triggering steep losses in U.S. and European stocks. Rumors of Beijing's hand in the market reversed the selling by Thursday, which helped support global shares prices, commodities, and currencies of emerging markets that had been battered. The Shanghai Composite Index fell for second-straight week and posted a third month of declines, falling 11.8% in August. Hong Kong's Hang Seng Index lost 12.3% this month, its worst monthly performance since September 2011.
Base metals were largely higher on Friday, although copper lost 0.6%. Brent was 0.6% lower at $49.77/bbl, although WTI posted a strong 6.3% gain to reach $45.22/bbl. Gold added 0.7% to $1,134/oz and iron ore climbed 3.9% to $56.04/t.
In This Issue
CTI Logistics (CLX) | BUY
FY15 was more about investing in the future than earnings, which reduced in line with the slowing WA economy. We believe that the further investment in the logistics hub at Hazelmere in Perth and the acquisition of an east-coast based logistics business provides a platform for long-term growth. Property sales are now needed to reduce gearing to more comfortable levels. We maintain a buy call on a $1.85 valuation (prior $2.10).
Global Construction (GCS) | BUY
Given the July market update, there were no surprises in GCS’s results (revenue of $150.5m and NPAT of $8.7m). We pencil in strong growth in the Commercial division on the back of secured work and a robust pipeline which, together with a lower interest charge on reducing debt, sees our FY16 NPAT climb to $14.3m. We like the stronger balance sheet, the Brookfield relationship, and the strategic diversification onto the east coast. A GCS business that is more geographically diversified will be better positioned to face the vagaries of the WA economy and we maintain a buy recommendation on an unchanged $0.65 valuation.
Recent Contacts & Presentations
Dacian (DCN), Evolution (EVN), Austal (ASB), Resolute (RSG), Pacifico (PMY), Kingsgate (KCN), Troy (TRY), Northern Star (NST), Sandfire (SFR), Regis (RRL), Saracen (SAR), Sino Gas & Energy (SEH), Buru Energy (BRU), Carnarvon Petroleum (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), High Peak Royalties (HPR), Karoon Gas (KAR), Austex Oil (AOK), Central Petroleum (CTP), Senex Energy (SXY), Newmont, Coventry (CYY), Energia (EMX), Minemakers Limited (MAK)