Evening Wrap: Iron ore miners and tech stocks tumble on China's deepening economic woes

The Index hit a 1-month low as China's credit crisis spreads to one of its largest trust firms, China's new home prices fall for the first time this year, Delta Lithium shares surge amid speculation that Mineral Resources is scooping up shares, Fletcher Building breaks the streak of hot building material results and Citi's take on a few recent results.

Let's dive in.

ASX 200 Session Chart

ASX 200 finished lower and at worst levels (Source: TradingView)

Markets

What a heavy session. The ASX 200 finished lower and at worst levels on Wednesday after a weak lead from Wall Street. The risk-off session was further compounded by China's deteriorating credit crisis, with one of its largest private wealth managers, Zhongrong, missing payments on dozens of products. Growth and resources led to the downside while Defensive sectors like Real Estate, Healthcare and Staples outperformed on a relative basis.

After an extended rally off early July lows, the market is pulling back in spectacular fashion. Things have gone from ultra bullish to now, rather bearish. The Index is a little short-term oversold and fallen back to the 200-day moving average. Could we finish the week with a little bounce? Or do current macro woes call for further downside?

Economy

China’s new home prices fell for the first time this year in July, down 0.23% month-on-month.

• The biggest fall since December 2022

• Prices are down 0.1% year-on-year amid a worsening debt crisis among major property developers

Latest news

Interesting news and movers

Trading higher

• +21.2% Imricor Medical Systems (IMR) – Completes placement

• +10.5% Delta Lithium (DLI) – Speculation MinRes buyer of block trade

• +7.9% Pact Group (PGH) – Earnings

• +5.5% Bapcor (BAP) – Earnings

• +5.3% Mirvac (MGR) – Earnings

• +2.8% Qualitas (QAL) – Secures further $750m private credit

• +2.4% Sunland Group (SDG) – Earnings

• +2.4% Vicinity Centres (VCX) – Earnings

• +0.9% Count (CUP) – Completes merger

Trading lower

• -15.7% FINEOS Corp (FCL) – $40m raise

• -9.3% Fletcher Building (FBU) – Earnings

• -7.0% Temple & Webster (TPW) – Earnings (Tue)

• -6.3% Seven West (SWM) – Earnings

• -4.9% Life360 (360) – Earnings (Tue)

• -4.6% Seek (SEK) – Downgraded by multiple brokers

• -3.3% Computershare (CPU) – Earnings

• -3.4% Pro Medicus (PME) – Earnings (Tue)

• -3.1% Dexus (DXS) – Earnings

• -2.5% Sims (SGM) – Earnings (Tue)

• -1.6% Netwealth (NWL) – Earnings

• -1.5% Challenger (CGF) – Earnings (Tue)

• -1.3% Splitit (SPT) – Raising $50m, to delist from ASX

Broker notes

Citi’s take on recent earnings:

Computershare (CPU) – Buy with $25.90 target ($24.93 at 15 Aug close)

• “CPU’s FY23 result delivers on guidance, although is perhaps slightly soft compositionally.”

• “While guidance is a little softer than expected, fx is a key part of the reason while lower than expected margin income is also a factor.”

• “There is also strong growth in dividend and a planned A$750m buyback which we expect the market to like.”

CSL (CSL) – Buy with $325.00 target ($272.80 on 15 Aug close) 

• “The FY23 was as pre-announced and the FY24 NPATA guidance was maintained.”

• “The new information was 1) CSL expects Ig sales to grow at HSD over the long term, driven by PID, SID and CIDP despite the incoming competition from FcRns, 2) strong Ig sales growth is expected in FY24 (mid- teens vol. + MSD pricing), 3) disclosure of timeline and magnitude of the expected Ig yield improvement, 4) ~30% decline in capex in FY24.”

• "Our new TP of $325 (from $340) implies CSL should trade on an FY26 PE of ~26x, in-line with the 10- year average. Maintain Buy.”

Deterra Royalties (DRR) – Neutral with $4.70 target ($4.57 at 15 Aug close)

• “DRR’s FY23 NPAT of A$152.5m was in-line with Citi and 1% below VA Consensus.”

• “We are Neutral rated on DRR on valuation grounds. We do not see good risk- reward in chasing DRR at current levels.”

GUD Holdings (GUD) – Buy with $13.30 target ($11.74 at 15 Aug close)

• “GUD remains our top pick in the small cap auto parts sector. Our Buy rating is predicated on the relative resilience of the legacy auto business and improving momentum in new car sales, which should be favourable for APG's earnings outlook.”

• “After delivering better FY23 EBITA than we expected in a supply-constrained environment, we expect further upside in FY24 ($70 million)”

Sims (SGM) – Sell with $15.00 target ($15.85 at 15 Aug close)

• “Australian scrap demand held up well in 2H FY23, and in the US, SA Recycling surprised to the upside benefiting from higher domestic ferrous scrap pricing versus exports.”

• “We are more cautious; China steel production cuts are expected to see iron ore prices move lower in 2H CY23, limiting scrap price upside and also noting ongoing weakness in European scrap demand given weak steel output”

Treasury Wine Estate (TWE) – Sell with $10.50 target ($11.71 at 15 Aug close)

• “Treasury continues to execute well on its flagship Penfolds brand, albeit there was strong sell in towards the end of 4Q23 and lower 1H24 shipments are planned.”

• “We see greater uncertainty around the medium-term outlook for the Americas, which appears to be reliant on a successful 19 Crimes relaunch in FY24 and the headwind from distributor destocking abating. Treasury is trading on 21x FY24 EPS.”

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