Australian Stock Market Report - Midday August 24, 2015

• Local shares fell steeply at the start of trade on Monday, inspired several key factors including the selloff on Wall Street at the end of last week and the continuing weakness of the Chinese stock market which saw the Shanghai composite index fall by 11% over the course of last week. One of the fundamental factors at the heart of investor concerns is the anaemic levels of activity globally. This came down to a finer point when the US Fed released the minutes from the latest policy setting meeting last week. The cautious note that appeared to inform the discussion amongst policymakers in relation to the domestic and international growth picture has seen the markets globally take fright.

• The ASX 200 did show signs of consolidation in the early part of the session; buyers made an impression around the 5800 level for the index. Although the selling momentum returned quickly and the market made a new session low as lunchtime loomed. Every sector measured by the ASX was mired well in the red led by Energy. Expanding supply in the face of slowing growth globally remained the driving theme. To that end, Iran’s Oil Minister stated at the weekend that he country would raise oil production at any cost in order to defend its market share. The minister said Iran would permanently lose its market share if it did not raise production promptly.

• Health insurer nib Holdings ( NHF) reported a 7.9% rise in net profit after tax to $75.3m for the full year in 2015 financial year. The result was helped by a 4.7% rise in domestic premium growth. At the same time operating profit rose by 13% to $81.7m, and investment income rose 5.8% to $31.4m. A final dividend of 6 cents per share was declared, bringing the full year fully franked dividend to 11.5 cents per share and representing a profit payout ratio of 67%. NHF shares were at $3.35 down 14.5 cents or 4.1%

• Fortescue Metals (FMG) posted a huge slump in annual profit to US$316m for the 12 months ended 30 June 2015. The result was ~25% below consensus and held back by lower iron ore prices (-55% over FY15) and boosted by improvements in productivity, efficiency (including cost cutting measures) and record shipments. Australia’s 3rd largest iron ore miner generates 94% of its revenue from selling ore to China and is extremely sens itive to economic developments in the world’s second biggest economy. FMG accounted for 18% of China’s total iron ore imports in 2015. FMG said it achieved a realised price of US$57/dmt for its ore over the year and has US$2.4bn of cash on hand. FMG will surprisingly pay eligible investors a modest A$0.02/s fully franked final dividend on 5 October, with 3 September as the ex-dividend date. This decision was made despite its mountainous debt and weak earnings. FMG spent US$343m on payments over FY15. FMG shares were at $1.72 a loss of 19.5 cents or 10.2%.

• The UD/USD continues to trend lower despite a weaker USD. Concerns about the strength of the global economy continue to weigh on commodity prices, and limit upside in AUD/US. At lunch the local unit was just above 72 US cents.

Tom Piotrowski - Market Analyst (Author)

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