Aussie market drops on Fed hike; Santos raises equity
What Mattered Today
This morning’s move by the US Federal Reserve to increase rates was widely expected however the projections for 3 hikes in 2017 was above the 2 the market was pricing…That saw some late selling in the States which trickled into Oz this morning and we ended a soggy session near the lows. Santos didn’t help things with its move overnight to launch a capital raising after a good run up in share price - understandably we saw Santos weak, but so too were the other energy coys as the institutions reduced exposure to other energy plays to fund their discounted stock in Santos.
The raise is $1.5bn, of which just over $1bn was raised from institutions at $4.06 overnight – and they claim it was oversubscribed but I’d be very sceptical of that being the case…Anyway, they’ll do a retail component for the rest at the same price as the insto placement, however given the shares closed today at $3.93 they’ll be very little appetite to take up shares at $4.06 + the retail component is not underwritten so unless the stock bounces – which is a big call now given that insto’s a probably full to the gills with it, then STO will struggle to get the rest away.
The other baffling thing about the deal was the timing. Why on earth would any board launch a raise the night the US Fed was going to raise rates – there’s simply no upside is doing that? I’ve met STO management on a number of occasions and unfortunately, they don’t inspire confidence.
Santos (STO) Daily Chart
As suggested above, the money going into Santos meant that funds came out of the other energy companies, like Origin (which we hold) – however for now we still target $7 for ORG…
Origin Energy (ORG) Daily Chart
Resources stocks were once again weak, largely on the back of strength in the $US…Important to note though that some have stretched valuations, while others don’t. There’s a lot of discrepancy within this broad sector. For now, we remain negative the sector generally and have no exposure in our portfolio HOWEVER we’re flexible and that may change in time…
BHP Daily Chart
We had a range today of +/- 63 points, a high of 5580, a low of 5517 and a close of 5538, off -46pts or -0.82%.
ASX 200 daily chart
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