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Index rises despite mixed global sentiment

The market capitalisation of WA listed companies continued their upward trajectory during October, with the Deloitte WA Index increasing 1.8 per cent during the month, closing at $145.38 billion.

 

Iron ore producers lead the way, with China’s appetite for the commodity resulting in a 14.5 per cent increase during the month, driven largely by a speculated growth in demand for steel, combined with customers taking advantage of the low prices to replenish stocks.

“Renewed confidence in the short to medium term demand for steel has brought much needed relief to WA’s iron ore industry, and is allowing producers to re-evaluate whether previously halted projects are now feasible,” Deloitte’s WA mining leader Tim Richards said.

Investors remain cautious, however, on the back of the announcement of China’s GDP data for the September quarter, released mid-October. The Chinese economy grew by 7.4 per cent year on year in the third quarter, the slowest rate since early 2009.

The news of slower growth renewed fears of lower levels of investment in infrastructure and commercial construction, negatively impacting base metals nickel, zinc and aluminium, whose prices fell by 12.4 per cent, 11.4 per cent and 9.9 per cent respectively.

The All Ordinaries outperformed the WA Index in October, boosted by the strength of key iron ore producers BHP Billiton and Rio Tinto, as well as strong performances from the big four banks which announced robust annual profits.

Turning to global markets, the Eurozone is showing signs of progress as its finance ministers have moved to establish the European Stability Mechanism (ESM). The ESM will be the Eurozone’s permanent bailout fund, with initial funds of €500bn.

Recently released macroeconomic data has highlighted the importance of advancement in policies and reforms in the Eurozone, with unemployment rising to an all-time high of 11.6 per cent in October as the economy continues to further contract.

The FTSE increased by 1.1 per cent this month, as the UK economy officially emerged from recession. UK GDP data released this month showed a 1 per cent positive annual growth, the fastest quarterly growth rate in the past five years, boosted by the recent Olympics.

In contrast, the Nikkei this month fell by 1.2 per cent, with a strong Yen continuing to diminish export revenues, while the US S&P 500 fell 2.4 per cent on pre-hurricane jitters. The New York stock exchange remained closed for two days at the end of the month, the longest period since 1888, due to super-storm Sandy. Global markets have also increasingly been turning their attention to the US presidential election, with investors expecting the US “fiscal cliff” to have some impact on global investor confidence.

The Deloitte WA Index Movers and Shakers for the month of October included Aspen Group, Marengo Mining and Central Petroleum, who posted increases in market capitalisation of 99.4 per cent, 52.4 per cent and 44.7 per cent respectively.

Marengo Mining Limited (Marengo) experienced a 52.4 per cent increase in its market capitalisation during October, increasing by $63m to $182m. Marengo is focused on its highly prospective Yandera Project, one of the largest undeveloped copper projects in the Asia-Pacific Region.

In early October, Marengo presented at the Resources Rising Stars Conference in Queensland, outlining the considerable resource potential of the Yandera Project and the company’s future development plan, helping to drive the share price appreciation experienced over the course of the month.

Central Petroleum’s (Central) market capitalisation increased by $84m to close the month at $270m. This increase is related largely to Central’s joint venture with Santos Limited for the further exploration and potential development of permits in the Amadeus and Pedirka Basins in central Australia, which was announced in early October. The arrangement relieves Central of the obligation to provide substantial capital, with Santos Limited to fund exploration activities, in return for up to a 70 per cent interest in the areas of interest.

 



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