Deloitte WA Index finishes financial year in a slump, global markets recover yet Eurozone concerns remainDOWNLOAD
3 July 2012: The market capitalisation of WA listed companies comprising the Deloitte WA Index decreased 3.2% during June to AU$125bn, due largely to downward pressure on commodity prices more than compensating for the slight recovery experienced by the global equity markets.
Commodity prices slumped during the month of June, with weakening demand from China for bulk commodities causing coal prices to fall 9.5%, and threatening to cause delays in Australian mining projects. Additionally, base metals continue to suffer from industry overcapacity and supply overhang, with aluminium and tin prices falling 4.9% and 4.5% respectively.
Deloitte’s National Mining Leader Tim Richards said news of slower Asian domestic demand and the likelihood of weak U.S. and Eurozone growth has generated reduced commodity prices and kept the All Ordinaries flat over the month of June.
“The slump in the Australian share market comes despite the release of data this month showing seasonally adjusted GDP growth of 1.3% in the March quarter, and employment growth of 1.0% in the year to 31 May 2012,” he said.
A marginal increase in investor confidence as a result of a successful Greek general election, and the agreement by Eurozone leaders of a €100bn bailout plan for ailing Spanish banks, saw global equity markets recovering from their May slump. The All Ordinaries remained unchanged, while the US S&P 500 rose by 1.2%, and the FTSE 100 and Nikkei rose by 4.7% and 3.9% respectively.
Mr Richards said it remains to be seen if June’s gains for the Eurozone are to be sustained.
“The Spanish Banks’ bailout plan is expected to be finalised in the coming weeks, and there is growing concern that a Spanish sovereign bailout may follow. With unemployment still rising, domestic retail demand decreasing and a weak export market, Spain’s economic outlook continues to look gloomy,” he said.
“Combine this with the increasing cost of debt making it difficult for Spain to reduce its fiscal deficit; it becomes difficult to shake off the ongoing negative speculation plaguing the Eurozone. Additionally during June Cyprus’ credit rating was downgraded by Fitch Rating Agency to below investment grade, and became the 5th Eurozone country to request bailout funds.”
Even with the continued slump in the WA Index, some companies still experienced significant gains over the course of the month. The Movers and Shakers for the month of June were Little World Beverages Limited, Mirabela Nickel Limited and Pancontinental Oil & Gas NL, who increased their market capitalisation by 42.7%, 30.3% and 16.8% respectively.
Little World Breweries Limited (LWB), better known for its boutique beer brands Little Creatures (WA) and White Rabbit (Victoria) enjoyed a surge in its share price following a takeover offer from Australia’s biggest brewer, Lion Co. For the month ended 30 June, LWB’s share price closed 39.4% higher at AU$5.16 and its market capitalisation increased from AU$238m to AU$339m, an increase of 42.7%, and a jump of 23 places into the top 50 of the Deloitte WA Index.
Mirabela Nickel Limited is engaged in the exploration, development and production of minerals in Brazil and is the 100% owner of the Santa Rita nickel-sulphide mine in Bahia, Brazil. Mirabela saw an increase in its market capitalisation of AU$51m to AU$219m by 30 June. This can be primarily attributed to an allotment of 68,017,072 shares under a Retail Entitlement Offer announced on 12 June.
Pancontinental Oil & Gas NL (PCL) is a Perth based oil and gas exploration company with a focus on Australia and Africa, holding offshore licences in Kenya and Namibia. In order to fund the ongoing exploration projects in Kenya and Namibia, on 1 June 2012 PCL announced a share issue of 128,142,858 fully paid ordinary shares. This was the core factor in an increase in market capitalisation of AU$27m to AU$191m for the month of June.