ASX hits session lows as coronavirus spreads

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Summary

  • Local shares inch higher in early trade, then reverse hard
  • Healthcare only sector in positive territory, energy, financials and communications tumble
  • Crude oil price hit 14-month low
  • South Korea reports big surge in virus cases, US also investigating community spread
  • Aussie dollar remains at GFC lows

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On top of this update, the US Centre for Disease Control and Prevention has just confirmed the "possible" instance of community spread of COVID-19 in the United States.

Not surprisingly, local stocks have hit their lows for the session on the news.

Prospa shares were up more than 8 per cent to $1.90 this morning after it managed to meet guidance provided in last year's disastrous profit downgrade.

The small business lender said first half revenue was up 12 per cent to $75.6 million and it reported a net profit of $600,000.

The company said revenue for the calendar year was $144.4 million and in line with the November guidance which saw the stock crash as much as 28 per cent to a new low at that time of $2.79.

Chairman Gail Pemberton congratulated the management team for "putting a sharper focus on managing yield."

Prospa reiterated its FY20 guidance for loan originations of between $626 million and $640 million and revenue of more than $150 million.

Businesses wound back their capital spending in the December quarter in further confirmation the economy is only being held up by government spending and population growth.

The Australian Bureau of Statistics said private capital expenditure dropped by 2.8 per cent in the final three months of 2019.

Spending on buildings and structures dropped by 5.9 per cent while there was some life in the engineering sector which recorded a 0.8 per cent lift.

All major sectors went backwards.

Mining expenditure fell 2.7 per cent to $8.5 billion. At the height of the mining boom in the June quarter 2012, mining capex peaked at $24.3 billion. Manufacturing spending dropped 10.1 per cent while the other industries sector was down by 1.9 per cent.

Looking ahead, the fifth estimate for 2019-20 was $120.3 billion. This is a 2.8 per cent lift on the fourth estimate.

For 2020-21, the first estimate was $100.1 billion. Given expected realisation rates, that suggests a capex spend next financial year around $120 billion.

There was some positives in the expected spend. The mining sector's first estimate, at $38.5 billion, is 28 per cent up on the first estimate for the 2019-20 financial year.

Markets had been looking for at least a positive capex spend through the December quarter result which feeds into next week's national accounts.

Afterpay beat market expectations but also flagged it will continue to significantly investment in growth opportunities around the world including its entry to the Canadian market this year.

The company said merchant turnover using its buy now pay later service more than doubled to $4.8 billion for the December half year and the company said its current run rate is for $11 billion of turnover per annum. Active customer numbers were up 134 per cent to 7.3 million, and group revenue nearly doubled to $220 million.

Morgan Stanley, which upgraded the stock ahead of the result, was forecasting active customer numbers of 7.1 million and $4.6 billion of turnover and revenue of $223 million.

Morgan Stanley has a price target of $45 on the stock which was down slightly this morning to $34.95.

The company flagged its "ambition' to reach 9.5 million active customers this financial year, and exceed its previously stated target for $20 billion of merchant turnover by the 2022 financial year.

"The strong metrics announced today reflect our team's efforts to considerably accelerate sales growth across our global business, while at the same time balancing business performance and developing our team," said the company's chief executive Anthony Eisen.

"Our global expansion is accelerating with the US and UK growing at a considerably faster rate than what we experienced in ANZ," he said.

APT shares have been on a wild ride this morning, tanking in early trade only to reverse those moves over the past hour. They're currently up 1.3 per cent to $36.43.

There's more detail here. 

Business investment declined sharply in the December quarter, adding to downside risks for next week’s Australian GDP report.

Private capital expenditure (capex) skidded 2.8 per cent to $28.454 billion in seasonally adjusted chain volume terms, well below the 0.5 per cent increase expected by economists.

From a year earlier, capex declined by 5.8 per cent.

Investment in building and structures slumped 5.9 per cent to $14.815 billion, leaving the decline over the year at 9.6 per cent.

Capex on equipment, plant and machinery – a direct but small GDP input – rose by 0.8 per cent during the quarter to $13.639 billion. This will add marginally to economic growth in Q4.

From a year earlier, spending in these areas still fell 1.3 per cent.

The capex survey accounts for around 60 per cent of all business investment in Australia.

Looking ahead, the fifth estimate for capex spend in FY20 rose to $120.344 billion, up 2.8 per cent on the same estimate for FY19.

The first estimate for FY21 spend stood at $100.186 billion, up 8.8 per cent on a year earlier thanks largely to firmer intentions from the mining sector.

Estimates tend to be revised higher over time as operating conditions become more certain.

Given the timing of the latest capex survey, and the subsequent outbreak of the coronavirus, my personal view is the latest estimates are close to redundant as one can get.

The outlook has obviously clouded substantially over the past month.

What yield-chasing giveth, coronavirus-led concerns for corporate solvency taketh away.

High-yield corporate debt has attracted massive inflows in recent years as investors moved further out the risk asset spectrum in search for decent returns.

As a barometer of sentiment towards corporate solvency, the move overnight is worth paying attention to.

After a promising start, the local market has succumbed to another bout of selling pressure.

The benchmark is now down 0.5 per cent at 6675, erasing all of its gains for the year.

All sectors except for staples and healthcare are now lower, led by a 1.6 per cent plunge in energy. Financials and communications are also off more than 1 per cent.  

Of note, US S&P 500 futures - having been modestly higher ahead of Trump's speech - are now down 1 per cent.

Link Administration has delivered an underwhelming first half profit result, sending its shares sharply lower.

The administrative services firm reported a statutory net profit after tax of $29 million, down 85 per cent from the same period a year earlier.

Operating NPATA slipped 11 per cent to $81 million over the same period as revenue fell 4 per cent to $624 million. Operating EBITDA also fell 11 per cent to $163 million.

“This is a transitional year for Link Group, which is reflected in our results,” Link MD John McMurtrie said. “However, we are making good progress on delivering on our strategic plan and our medium to long term outlook remains strong.”

The company said operating EBITDA for FY20 is expected to be approximately 10 per cent lower than in FY19.

Link declared a full-franked interim dividend of 6.5 cents.

LNK shares have fallen 9.2 per cent to $5.25.

The Bank of Queensland has blamed previous underperformance on its complex product offerings and long processing times, as well as lagging digital uptake and tough regulatory conditions as it reveals its technology and growth-focused five year strategy.

The 165-branch bank announced its new strategy on Thursday promising to combine "traditional banking with contemporary digital capabilities" by slashing some of its 220 banking products and reducing conditional approvals for mortgages from five days to around one.

The bank also revised upwards its cash earnings guidance to be 4 to 6 per cent lower than the previous year, driven by better than expected income growth and lower default rates. In October, after unveiling a 14 per cent fall in cash profit, BOQ boss George Frazis said that in 2020 they were expecting "outcomes in line" with the" 2019 result.

BOQ shares are up 2.7 per cent to $7.51.

Charlotte has more here. 

Donald Trump is currently holding a press conference on the threat posed by the coronavirus outbreak on the United States. 

Nothing substantial has come out as yet, but Trump being Trump, there's always the possibility for surprise and some further market volatility.

Of note, vice president Mike Pence has been appointed the so-called coronavirus "tsar".

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