Morning Report Wednesday 8 April 2015
Yesterday, there were two pieces of significant news that hit the local equity market. Firstly, the RBA did not cut interest rates as anticipated, due to fears of an overheating Sydney property market. Secondly, Atlas Iron (AGO) went into voluntary suspension as it reviews its loss making operations. Notably this was the darling of the market in 2011, with a market capitalisation of over $3.5bn. Since then, the stock has fallen from over $4 to just 12c - see chart 1. The Iron Ore sector is getting battered on both the supply and demand side of the equation. Local heavyweights BHP and RIO are driving the price decline with massive increased supply e.g. BHP’s annual output has climbed from 144 million tonnes in 2011 to a forecast 245 million tonnes this year. Plus, as I have said previously lower world growth is inevitable due to ageing populations, led by Japan, implying no obvious improvement to the demand side of the equation in the long term.
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